From 50-pound bags of rice to pet insurance to solar panel installation, the range of items and services that entails Costco (NASDAQ: COST) offers to its customers is remarkable. However, one of the most popular items lately is gold bullion. Of the 101 stores Bloomberg surveyed earlier this month, 77% reported selling out of bars of the yellow metal.
But buying gold bullion will only translate into growth in your investment if the price of gold rises – something that is far from certain. Investors looking to gain exposure to gold, on the other hand, would be better off looking into dividend-paying gold stocks. Luckily for them, Agnico Eagle Mines (NYSE: AEM), Centerra Gold (NYSE:CGAU)And French Nevada (NYSE: FNV) are three top dividend-paying gold stocks that are looking particularly bright right now.
Agnico Eagle offers a conservative approach to the yellow stuff
With a history of over 60 years, Agnico Eagle has become one of the leading gold producers available to investors. It manages a significant portfolio of eleven assets in four countries and forecasts gold production of approximately 3.45 million ounces in 2024. The company has made solid progress towards achieving this guidance and reports gold production of 1.8 million ounces during the first half of the year. The future also appears bright, with approximately 54 million gold ounces in proven and probable reserves.
Agnico Eagle has paid a dividend for 41 consecutive years, demonstrating a strong commitment to rewarding shareholders. Should the company pay a dividend of $1.60 per share in 2024, as management expects, the company will have increased its dividend at a compound annual growth rate (CAGR) of over 23% since paying $0.03 per share in 2005 . Investors who pick up Agnico Eagle shares and the 2% prepaid dividend can rest easy knowing the company isn’t jeopardizing its financial health to reward shareholders. Agnico Eagle has an investment grade balance sheet and its payout ratio has averaged 64% over the past five years.
Your passive income stream can shine with Centerra Gold
With a market cap of $1.5 billion, Centerra Gold may not be one of the largest gold stocks on the market. But what it lacks in size in terms of market capitalization, it makes up for in its payout – one of the most attractive dividends among its gold stock peers, with a forward yield of 2.9%. Adding to the stock’s appeal at the moment is the fact that it is currently in the bargain bin. Currently, Centerra shares are valued at 4.3 times operating cash flow, a discount to their five-year average cash flow multiple of 5.6.
Like Agnico Eagle, Centerra operates from a position of significant financial strength. While many gold producers rely heavily on leverage to develop their metal-producing assets, Centerra maintains a solid balance sheet that currently has no debt and $592 million in cash on hand.
The company has two core projects in its portfolio: Mount Milligan and Oksut. But Centerra has several irons in the fire and is positioning the company for growth. Most notably, it aims to expand its molybdenum business by ramping up operations at its molybdenum conversion plant in Langeloth. Management expects that when Langeloth reaches production capacity (approximately 40 million pounds per year), it will generate approximately $50 million in earnings before interest, taxes, depreciation and amortization (EBITDA) per year.
Franco-Nevada offers a unique approach to gold investing
For a slightly different approach to gaining gold exposure, investors can consider Franco-Nevada, a royalty and streaming company. By acting as specialist financiers, royalty and streaming companies provide gold mining companies with upfront capital for asset development. In return, the royalty and streaming companies receive a percentage of the mine’s revenue, or the right to purchase future production of a metal from a mine for an agreed upon price.
Franco-Nevada has a formidable portfolio with interests in 432 projects. While 118 of these projects are currently in production, 38 projects are in the advanced development phase and 276 are in the exploration phase. So there is a robust pipeline of growth projects. These projects represent a variety of commodities, from precious metals to oil and gas to platinum group metals. But it’s gold that represents the company’s bread and butter. For example, in the second quarter of 2024, gold accounted for 61% of the company’s revenue. Oil was the second largest contributor to quarterly sales, accounting for 14% of sales.
Franco-Nevada’s dividend currently offers a modest forward yield of 1.2%. While not as generous as Centerra or Agnico Eagle, it is better than the non-existent dividend investors who buy precious metals. Furthermore, the company’s commitment to rewarding shareholders is clear. It has increased its payout for seventeen years in a row, suggesting future dividend increases are likely.
Should you add some glitter to your portfolio now with these gold stocks?
For those interested in diversifying their portfolios with an investment in gold, purchasing gold bullion at Costco is not the best option, as these gold bars will only prove to be successful investments if the price of gold continues to rise. Instead, investors would be better off buying shares of dividend payers Agnico Eagle and Centerra – although the latter could be attractive to those looking for stocks on the discount rack. For the most conservative investors, Franco-Nevada is a better option because the country is not exposed to the risks of asset development like gold-producing companies are.
Should you invest $1,000 in the Agnico Eagle mines now?
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Scott Levine has no position in any of the stocks mentioned. The Motley Fool holds and recommends positions in Centerra Gold and Costco Wholesale. The Motley Fool has a disclosure policy.
Instead of buying gold bars from Costco, Buy This 3 Lustrous Gold Stocks was originally published by The Motley Fool
