Gold digger shares Nieuwmont(NYSE: NEM) fell 14.7% on Thursday after the company reported third-quarter 2024 results. The sell-off may seem strange considering gold prices are still hovering around an all-time high.
This is what’s driving the dividend stock sell-off and why there may be better options for investing in gold than mining stocks.
Image source: Getty Images.
2024 was a phenomenal year for gold stocks and most mining stocks. Until the recent sell-off, Newmont stock and the gold price actually outperformed the S&P500 index (SNPINDEX: ^GSPC) so far – which is impressive considering it’s been an excellent year for the broader market. Even after the recent pullback, Newmont shares are still up 19% this year.
NEM chart
The main problem is that expectations are ahead of reality. In the short term, it can be difficult for gold miners to keep pace with the gold price because they have to spend more to produce more, and capital expenditure plans are usually made based on mid-cycle expectations, rather than overextending spend at the top of a cycle. .
Analysts expected Newmont to post adjusted earnings per share of $0.86, but only $0.81 in adjusted earnings per share. Still, Newmont’s results were incredibly impressive and included $760 million in free cash flow (FCF). However, third quarter revenue grew 4.6% quarter-over-quarter, compared to a 7.1% increase in costs applicable to revenue. It’s never a good sign for costs to exceed revenue growth, as this can lead to lower margins and worse-than-expected profit growth.
Newmont repurchased $500 million of stock during the quarter and returned $786 million to shareholders through share buybacks and dividend payments – which was more than the free cash flow it earned during the quarter. Newmont’s dividend payment may vary based on the company’s performance, but is currently $0.25 per share per quarter. Some investors may have preferred that Newmont pay a higher dividend rather than buy back shares. After all, the average price Newmont paid per share was $53.16 – which is higher than the stock’s closing price after Thursday’s sell-off.
Still, the Newmont sell-off is probably more due to the stock price getting ahead of itself than poor performance. There’s a lot to be said about Newmont’s results and fourth-quarter guidance. As of October 23, the stock had risen more than 50% in the past year, compared to a 34.3% rise in gold prices. Newmont saw a huge increase in October before the recent sell-off. So there was a lot of pressure on Newmont to deliver a perfect quarter, which didn’t happen.
Miners can be a great way to invest in gold if they can control costs and invest in efficient mines. As mentioned, Newmont has been a better investment than gold or the S&P 500 over the past year, until the recent sell-off. And since Newmont pays dividends, it offers a way to earn passive income from gold, while buying gold bullion doesn’t earn dividends.
However, an easier way to invest in gold than mining stocks is to buy an exchange-traded fund (ETF), such as SPDR Gold Shares(NYSEMKT: GLD) or the iShares Gold Trust(NYSEMKT: IAU). As you can see in the following chart, both ETFs have closely tracked the gold price.
Both financial products use a custodian to hold their physical gold so that their value is backed by tangible assets. The iShares Gold Trust has an expense ratio of 0.25%, or $2.50 per $1,000 invested, compared to an expense ratio of 0.4% for SPDR Gold shares. Both expense ratios are reasonable, since buying gold usually involves paying a fee above the spot price, not to mention the storage and security costs if you want to keep gold safe rather than under your mattress.
Investors may want to invest in gold for various reasons. But most simply, it’s an alternative to stocks and bonds that can do well in times of uncertainty. It is also a store of value that is not dependent on the US dollar or the US economy.
If the main reason you’re thinking about gold is its proven value, even during economic turbulence, then it makes more sense to just buy shares in a gold ETF rather than gold mining stocks with many more variables. However, if you already own gold bullion or a gold ETF and are looking for an additional way to invest in the yellow stuff, then researching gold miners may make sense. There are also ETFs for gold miners, such as the VanEck Gold Seekers ETF, in which Newmont is, unsurprisingly, the top holding company.
In short, it’s best to approach investing in gold in a way that suits your goals and your liquidity needs. And for most people, a gold mining ETF is probably a better buy than Newmont.
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Daniel Foelber 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.
Why are Newmont gold mining dividend stocks being sold while gold prices are at record highs? was originally published by The Motley Fool
