We live in uncertain times – Brexit, trade tensions, and now the COVID-19 lockdown. As a result of these challenges, the Bank of England and other central banks have had to start printing money.
This didn’t just involve lowering interest rates to zero. Central banks also started quantitative easing (QE). This means the central banks buy bonds to inject new money into the financial system. Many experts think that it will lead to inflation.
The question for us is where FTSE 100 investors should invest now.
Best buy as uncertainty looms
In this situation it is natural to flee from risk. But where to? Well, gold is a logical safe haven for investors during turbulent times. Inflation, negative real interest rates, economic and geoplitical risks all add up to this commodity’s appreciation. As I’ve mentioned above, all these factors are now present.
It is possible that the coronavirus crisis as well as the current monetary conditions will end soon. It is possible. But I doubt that the uncertainties will resolved quickly.
One significant disadvantage of holding physical gold is that it doesn’t pay any interest or dividends. The good news is that we can take advantage of the FTSE 100 and gold at the same time.
FTSE 100 company’s shares
Polymetal International (LSE:POLY) is the second-largest gold producer in Russia, and also has operations in Kazakhstan. Polymetal has been steadily growing its revenue and profits for several years. The company’s shares are a really good alternative to gold since 84% of Polymetal’s revenues come from selling this precious metal. Therefore, the correlation between gold and Polymetal’s shares is really strong.
Source: YCharts
The POLY share price is at record highs. Indeed, I’d prefer it to be lower but it still has growth potential. Its price-to-earnings (P/E) ratio of 16.64 is not that high given that earnings per share and revenue show stable growth.
| Year | 2019 | 2018 | 2017 | 2016 |
| Revenue (m) | $2,246 | $1,882 | $1,815 | $1,583 |
| EPS | $1.25 | $1.00 | $0.90 | $0.90 |
| Dividend per share | $0.51 | $0.47 | $0.32 | $0.37 |
Source: Polymetal International
The POLY share’s current dividend yield of 4.08% is very close to the FTSE 100’s average of 4.39%. But please don’t forget that many companies’ high dividends will probably not be sustainable during the crisis. Polymetal’s dividend per share has been rising since 2017. Year 2019 was particularly successful in terms of revenue generation and profits.
When I checked the company’s financials, I liked the fact that the operating cash flow rose by 36% between years 2018 and 2019. Polymetal’s net profit rose by exactly the same percentage during the period. The company’s net debt also declined by 3% during the period. All these accounting fundamentals paint a really positive picture.
Conclusion
Betting on rising Polymetal International’s share prices is like betting that gold prices will rise. At the same time, it is a good opportunity to benefit from sustainable dividends. Even though Polymetal’s share price is near record highs, just like the price of gold, both have the potential to increase further.
