Kinross Gold (TSX: K) and B2Gold (TSX: BTO) are two of Canada’s best-known gold mining companies. Both are relatively large gold producers that mine and sell gold for the world market. There are many similarities between the two companies. Both are actively acquiring new assets. Both are usually profitable. Both pay dividends. These qualities make Kinross and B2Gold pretty representative examples of “senior” gold miners.
Neverthless, Kinross and B2Gold are not the same company nor the same opportunity. B2Gold is a high-yield stock whose future returns are more likely to come from dividends than capital appreciation. Kinross is a much faster grower whose returns — if the company is successful and gold prices don’t collapse — will come from compounding rather than cash payouts. In this article, I will explore Kinross and B2Gold side by side so you can decide which gold stock is the better fit for your portfolio.
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The case for Kinross Gold
The case for buying Kinross Gold instead of B2Gold is that the former is in much better financial condition than the latter. Kinross has a 15.2% net income margin, a 15% free cash flow margin, and a 16% return on equity. All of the same metrics for B2Gold were negative in the trailing 12-month period. Also, Kinross has a good balance sheet.
Kinross’s balance sheet currently boasts a 0.25 debt-to-equity ratio and a 1.58 current ratio. Debt-to-equity ratios below one and current ratios above one are considered ideal. So, Kinross passes both tests. B2Gold actually scores well on these balance sheet metrics as well, but with its lack of profitability, that company is more likely to have to eat into its asset position in order to survive. So, a higher standard is required for B2Gold.
Last but not least, Kinross has a much lower payout ratio than B2Gold does. Kinross pays out just 15% of its earnings as dividends, while B2Gold pays out a full 75%. This means that B2Gold is much more likely to have to cut its dividend in the event of adverse market conditions than B2Gold. It also means that B2Gold retains less earnings to invest back into itself than Kinross does.
The case for B2Gold
The case for buying B2Gold over Kinross comes down to multiples. Because of its lesser profitability and higher payout ratio, B2Gold stock is optically “cheaper” than that of Kinross:
- 14 times adjusted earnings
- 12.97 times analysts’ estimate of next year’s earnings
- Two times sales
- 1.3 times book value
- Four times cash flow
By contrast, Kinross trades at the following:
- 16.9 times earnings
- 14.8 times analysts’ estimate of next year’s earnings
- 2.6 times sales
- 1.9 times book
- 5.86 times cash flow
As you can see, B2Gold is “cheaper” if you go by all the metrics above. With all that said, true cheapness means being cheap relative to future lifetime earnings, and it looks like Kinross has better future earning prospects than B2Gold does.
Final verdict
On the whole, I’m inclined to think that Kinross will perform better than B2Gold going forward. It is more profitable and has a lower payout ratio, which means it retains more money to invest in itself. These qualities argue for better relative performance than BTO.
