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Better Stock: Yamana Gold (AUY) vs. Goldcorp (GG)

Dan Caplinger, The Motley Fool

There's been substantial turbulence in the precious metals market throughout the 2010s, with record highs for gold prices giving way to a long bear market for the metal. Yet recently, interest in gold has blossomed, and although there are many solid stocks in the space, both Yamana Gold (NYSE: AUY) and Goldcorp (NYSE: GG) stand out as key players in the industry.

Goldcorp is one of the largest mining companies in the world, with assets that span the globe. Yamana isn't as large, but its growth trajectory has more promise, especially if a key mining property starts to live up to its full potential in the near future. Let's look more closely at Yamana Gold and Goldcorp to see which one makes the better stock right now.

Mining operation with trucks, equipment, and cuts all shown in an arid landscape.

Image source: Goldcorp.

Valuation and stock performance

Neither Yamana Gold nor Goldcorp has given a lot to shareholders over the past year, but Yamana has at least generated a positive return. Its shares are up 3% since April 2017, compared to a decline of 4% for Goldcorp.

From a valuation standpoint, comparing the two miners by looking back at recent earnings is difficult, because Yamana has posted recent losses compared to solid profits from Goldcorp. In fact, Yamana has been consistently unprofitable since 2013, when the bottom fell out of the gold market. The period wasn't a great one for Goldcorp, either, but the miner was able to move beyond its impairment-related charges and return to profitability, with its bottom line getting a boost in part from favorable tax reform in Argentina.

When you look at forward earnings expectations, the two stocks look a lot more similar. Goldcorp has a forward earnings estimate of 19, compared to just over 20 for Yamana. Nevertheless, with more established earnings right now, Goldcorp's valuation looks more justified at present.

Dividend income

Gold miners aren't well known for being dividend powerhouses, and neither Yamana nor Goldcorp is an exception to that general rule. Both stocks pay nominal dividends, with yields of 0.7% for Yamana and 0.6% for Goldcorp showing that making payouts to shareholders isn't the driving factor for the mining companies' capital allocation practices.

What's clear, though, is that Yamana has been more volatile in its payouts than Goldcorp. During the boom times of the early 2010s, Yamana paid out as much as $0.065 per share on a quarterly basis, but that figure has plunged more than 90% to just $0.005 per share every three months now. Goldcorp's dividend got as high as $0.05 per share quarterly, and the company was able to sustain that level longer, until finally doing a 60% cut to reach its current quarterly payment of $0.02 per share. Goldcorp seems better able to protect dividend payments during the sluggish part of the cycle, but investors are likely to get bigger boosts during boom times from Yamana.

Growth and potential risk

Whether you prefer Yamana or Goldcorp largely depends on how you evaluate Yamana's growth prospects. Yamana's 2017 performance was mixed, with good production figures but subpar results on the bottom line. Yet everything in front of Yamana hinges on its Cerro Moro mine in Argentina, which is expected to ramp up production over the coming year. The huge project has the potential to transform Yamana entirely, with silver production in particular potentially tripling due to the valuable assets at Cerro Moro. Gold production is likely to rise 20% by 2019 because of the mine. After years of costly expenditures to develop the mine, finally getting a payoff from Cerro Moro will make Yamana look a lot different, and smart investors are looking to predict its future prospects before they become obvious in the miner's financial results.

Goldcorp, meanwhile, is large enough that its focus has been less on acquisition and development and more on maximizing efficiency. The miner has done an extremely good job of cutting expenses, with all-in sustaining costs down from close to $1,100 per ounce in early 2016 to around $800 per ounce. Further cost reductions are in the works, and Goldcorp's eventual goal is $700 per ounce. That would give it a huge competitive advantage over higher-cost producers, and it would allow the miner to take full advantage of other initiatives to boost reserves and production over the next three years. By using its existing portfolio of mining assets more efficiently, Goldcorp hopes to achieve long-term financial goals that will strengthen its balance sheet and allow it to take advantage of future opportunities as they arise.

The right pick for you

The prospects for Goldcorp and Yamana Gold are different enough that there's no clear-cut answer to which one makes the better stock right now. If you're a conservative investor who wants a proven track record with key assets, then Goldcorp looks like the safer play right now. If you want higher-growth prospects and are willing to take the risks of buying into a project early in its production phase, then Yamana has the better profile for you.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.