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Royalty Stocks: Your “Inflation Proof” Precious Metal PayCheck

 

Despite chaotic, uncertain markets you can watch a steady inflow of investment cash from these precious metal paychecks. Royalty stocks need little to no monitoring. They’re almost as “inflation proof” as gold, and pay out consistent dividends.

Pick one or two up and they could potentially keep your portfolio from getting sucked under water with the average investor. You’ll be safely riding the recession wave, while protecting your financial freedom far into the future.

Stable, Steady Investment Cash Flow

If you break mining down, it’s pretty simple. Find some valuable minerals, dig them up, refine them, and sell them. I’m oversimplifying the process, but you get it. Royalty companies don’t mine at all. They’re removed from the process entirely. They’re entirely hands-off – aside from making stable, steady cash flow. Here’s how they do it.

What is a Royalty Company?

A Royalty Company provides cash upfront for junior mining companies to operate. In return, they generally make money in two ways: Royalty and Streaming.

In a royalty deal, the royalty company provides cash upfront in exchange for a percentage of the miner’s revenue.

In a streaming deal, the royalty company provides cash upfront in exchange for the right to buy precious metals way below market price from the mining company.

What does a Royalty Deal look like?

Here’s a recent acquisition from one of the world’s leading royalty companies: Royal Gold Corporation.

On Aug.2 2022, Royal Gold announced the acquisition of a royalty interest on Cortez Gold Complex in Nevada.

Royal Gold paid cash $525M and drew on an additional $500M from $1B in revolving credit.

According to their press release:

“The Royalty is a life of mine sliding scale gross royalty payable at a rate of 0% at a gold price less than $400 per ounce. At current gold prices the Royalty is an effective 1.2% gross royalty on the Cortez Complex.”

Four Benefits of Investing in a Royalty Stock Company 

Consistent Results

When the price of gold and cost of energy move so quickly, it can be difficult for mining companies to make a profit. However, royalty companies often report consistent results because of their wide margins. For example, over the past 21 years, Royal Gold Inc. has increased their dividend every year. In November 2021, they announced a 17% increase in annual dividend payout from $1.20 to $1.40 Per Share for 2022 made in quarterly payments of $0.35.

Diversification Reduces Risk

Diversification reduces risk for royalty companies. While some mining companies’ operations are constrained to the results of one or two mines, royalty companies often hold dozens of interests. For example, Royal Gold Inc. has interests in 85 properties on five continents, including interests on 41 producing mines, and 19 development stage projects. This reduces risk from changes in government, war, shipping, and operational costs of investment assets.

Royal companies also reduce risk by diversifying mineral assets. While many primarily own gold assets they still maintain diverse royalties from silver, copper, or nickel investments.

Dividends

Many royalty companies pay dividends. While some mining companies may issue dividends, they are subject to changes in commodity prices. If commodity prices fall, so do the mines’ earnings. However, because royalty companies have wide margins, diversify their risk, and produce consistent results, investors can feel secure to ride through the boom and bust of political, economic, and commodity cycles.

Dividends are a core strategy of successful royalty companies.

“Paying a growing and sustainable dividend is a core strategic objective for Royal Gold,” commented Bill Heissenbuttel, President and CEO of Royal Gold. 

“We have paid approximately $680 million in dividends to shareholders since we began dividend payments in 2000,” continued Mr. Heissenbuttel, “and our history of consistent dividend growth is unmatched in the precious metals sector. 

Royalty Companies Share the Benefits of Bullion and more…

When you buy bullion, you only benefit from increases in the price of gold. When you invest in a royalty company, you win from stock increases, and the price of gold.

Two Risks of Investing in a Royalty Stock Company 

Dilution

In order to acquire new royalty deals, these companies can make the mistake of issuing too many shares in exchange for cash injections. For example, if the royalty company takes on too much debt, then they might be tempted to issue more shares to pay for that debt. This dilutes the value of your shares.

Leverage

Royalty Companies can choose to use debt to finance royalty, streaming and other financial maneuvers. Before investing, the best place to start is the organization’s balance sheet. Take a look at the amount of long-term debt they’re carrying. A high debt-to-income ratio can indicate. 

3 Royalty Company’s Earnings and Dividend Forecast

Royal Gold

(source: digrin.com)

Royal Gold has increased their annual dividend payout for 21 consecutive years. Since the outlook is good for gold, in 10 years time, this chart shows $3.82 USD in annual dividends by 2032. 

NASDAQ: RGLD (Royal Gold, Inc.)

Stock Price: $100.21 USD

Annual Dividend: $1.40 USD

According to most analysts, the stock is undervalued by 27% right now, making it a valuable cash flow and growth stock.

 

Wheaton Precious Metals

(source: digrin.com)

Wheaton Precious Metal has increased 5x over the past ten years. In 2011, their dividend payout was $0.03 USD / quarter. Now it’s at $0.15 USD / quarter. Since the outlook is good for gold, in 10 years time, this chart shows you could be looking at more than $1.05 USD in annual dividends, almost doubling the current payout.

TSE: WPM (Wheaton Precious Metals Inc.)

Stock Price: $32.44 USD

Annual Dividend: $0.60 USD

According to chart prices, this stock is now back to pre-pandemic pricing.

Sandstorm Gold

(source: digrin.com)

Sandstorm Gold issued their first dividend in the first quarter of 2021 at $0.06 USD. 

According to Digrin.com, the current dividend payout for stock Sandstorm Gold Ltd. (SAND) as of Aug. 18, 2022 is 0.06 USD. The forward dividend yield for SAND as of Aug. 18, 2022 is 1.36%.

TSE: SSL (Sandstorm Gold Ltd.)

Stock Price: $6.15 USD

Annual Dividend: $0.08 USD

Sandstorm Gold recently acquired Nomad Royalty. 

According to their recent press release the benefits of owning Sandstorm now include: 

“Industry-leading portfolio diversification with a resulting portfolio of 250 streams and royalties, of which 39 of the underlying assets are cash-flowing and no asset contributing more than 15% to the Company’s consensus net asset value”

 

What Now? 

Make sure to do your own due diligence when investing in anything. By reading this you have a good start towards riding on the coming chaos with ease and comfort. If you’re looking for steady cash flow to add to your investment portfolio, then start your research within the precious metals industry by looking at companies with royalty and streaming-based business models.


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