Gold is uptrending.
The bullion closed at $1,546.10 per troy ounce on Wednesday, which was 14.7% higher than the year-to-date cumulative average price of $1,348.50.
Several factors will continue to send gold prices higher, including the ongoing U.S.-China trade war, the lack of momentum from developing countries and weak U.S. gross domestic product growth. Brexit is also expected to boost gold prices.
Investors have several ways to benefit from the gold bull market. One way to do so is by investing in companies that acquire and manage precious metal streams and royalties. Shareholders will not only reap the rewards of asset value appreciation following the rise in the price of the commodity, but will gain from the absence of mining costs.
In fact, these companies do not mine gold and other metals as the existence of royalties, streams and other mineral interests in their portfolios give them the right to receive a specific percentage of the production that operators make from the mines. Thus, shareholders are protected from operational risks associated with mining activities.
Among precious metals royalty and streaming companies, Royal Gold Inc. (NASDAQ:RGLD) is well positioned to continue rewarding its shareholders with above-average margins in the coming months.
The chart below shows Royal Gold has outperformed the VanEck Vectors Gold Miners (GDX) exchange-traded fund by 13%, delivering an 87% gain over the past year through Sept. 4. The bullion posted more than a 28% gain over the same period.
Headquartered in Denver, the gold royalty and streaming company is generating income from 41 producing mines and owns interests in 16 development stage mineral projects. The portfolio of Royal Gold includes ownership of another 129 mineral properties located on five continents. Thus, the asset base is properly diversified from both a geographical and commodity standpoint.
Thanks to its diverse portfolio, Royal Gold generated a net profit of $93.8 million on $423.1 million in revenue and an operationg cash flow of $253.2 million in fiscal 2019.
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From its mineral interests, the company produced about 335,000 ounces of equivalent gold. In addition to the yellow metal, which remains the main income source, contributing 75% to 80% to total revenue, the company also generates income from the management of mineral interests owned in silver, copper, nickel, zinc, lead, cobalt and molybdenum deposits.
The balance sheet is robust enough to expand the existing portfolio. As of June 30, Royal Gold has approximately $900 milllion in total liquidity, including undrawn lines of credit.
GuruFocus assigned a rating of 7.2 out of 10 for the company's financial strength and a 7 out of 10 rating for its profitability and growth.
Currently, the company allocates more than 70% of its annual net income to the payment of quarterly dividends. On Oct. 18, Royal Gold will pay 26.5 cents per common share to shareholders of record as of Oct. 4. The ex-dividend date is scheduled for Oct. 3. As of Sept. 4, the distribution produces a forward dividend yield of 0.78% compared to the industry median of 2.54%.
The stock is not trading cheaply as it is above the 200-, 100- and 50-day simple moving average lines.
Further, the price-book ratio is 4.29 versus the industry median of 1.45 and the enterprise value-Ebitda ratio is 30.78 compared to the industry median of 8.84. The stock has a market capitalization of $9.09 billion.
The 14-day relative strength index of 74 indicates the stock is overbought.
Over the past year, 13 analysts on Wall Street issued hold recommendation ratings for shares of Royal Gold.
Disclosure: I have no positions in any securities mentioned.
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This article first appeared on GuruFocus.
- Warning! GuruFocus has detected 8 Warning Signs with RGLD. Click here to check it out.
- RGLD 15-Year Financial Data
- The intrinsic value of RGLD
- Peter Lynch Chart of RGLD