Franco-Nevada (TSX:FNV), a leading royalty and streaming company, has carved a niche in the precious metals sector by generating revenue from a diversified portfolio that primarily focuses on gold, silver, and platinum. Unlike traditional mining companies, Franco-Nevada doesn’t own or operate mines. Instead, it earns cash flow by providing upfront capital to mining companies in exchange for royalties and streams on their future production. This low-risk business model positions Franco-Nevada as a solid choice for conservative investors seeking stable returns with exposure to precious metals.
Low-risk, high-margin business with persistent dividend growth
One of the key advantages of Franco-Nevada’s business structure is its relatively low-risk nature. The company doesn’t engage in mining operations, exploration, or project development, which means it avoids the heavy costs and operational risks that come with owning and running mines. As a result, Franco-Nevada enjoys high margins and low overhead costs. However, like any company tied to commodity prices, its earnings are still influenced by fluctuations in gold, silver, and platinum prices.
Over the past year, Franco-Nevada’s stock price has climbed roughly 11%, currently trading around $165 per share. This return is not bad. What’s important to note is that the company is a Canadian Dividend Aristocrat, having increased its dividend every year for about 16 consecutive years. Its current dividend yield sits just under 1.3%. In addition, the company has demonstrated impressive long-term dividend growth: its three-year, five-year, and 10-year growth rates are 9.7%, 7.4%, and 6.6%, respectively. This growing income stream makes Franco-Nevada a good choice for conservative investors seeking exposure to precious metals.
A long-term growth story, despite short-term challenges
Franco-Nevada’s long-term track record is equally impressive. Over the past decade, the stock has delivered an annualized return of around 12%, effectively doubling the value of investors’ money every six years, which is an attractive return for a blue-chip stock. However, investors who bought the stock five years ago have seen lower returns, with annualized returns of around 6.5%. Still, this beats the long-term inflation rate of 2-3%, thereby increasing investors’ purchasing power.
Despite its solid historical performance, Franco-Nevada’s stock is currently down about 12% from its peak this year, largely due to issues at the Cobre Panama mine. The mine has been closed since last year due to public unrest, and this has created a cloud of uncertainty over the stock. While the mine is currently in “preservation and safe management” mode, any resumption of operations in 2025 could serve as a potential catalyst to re-rate the stock higher.
Growth catalysts
While the Cobre Panama mine represents a short-term challenge, there are several catalysts that could drive growth for Franco-Nevada in the coming years. The company is not reliant on a single asset. It has a diversified portfolio of royalty and streaming agreements that can fuel future growth. Additionally, new mines coming online could take time to ramp up production, offering a gradual boost to revenue.
Another exciting development is Franco-Nevada’s recent announcement of a $500 million precious metals stream agreement with Sibanye-Stillwater, a major South African mining company. This deal, which primarily focuses on gold and platinum, provides Franco-Nevada with immediate cash flow and further diversifies its portfolio.
Valuation and outlook for 2025
Franco-Nevada’s stock currently trades at an attractive valuation, with analysts suggesting a 12-month price target that reflects a potential upside of about 26%. Despite near-term headwinds, the company’s business model and strong growth prospects make it a solid pick for investors looking for stability and long-term growth.
With a well-balanced portfolio of precious metal royalties, solid dividend growth, and the potential for new streams and projects, Franco-Nevada remains well-positioned for future success. While short-term volatility might persist, its low-risk, high-margin model and growth potential make it an appealing investment for consideration going into 2025.
