I think these dividend-paying gold stocks are the best shares to buy now

As central banks ramp-up money printing on a massive scale, G A Chester sees dividend-paying gold stocks as the best shares to buy now.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

I’ve rated dividend-paying gold miners among my best shares to buy for some time. The havoc wreaked by the Covid-19 pandemic and massive ramp-up of money printing by the world’s central banks make safe-haven gold stocks even more attractive right now.

Sure, the price of gold has risen to over $1,700 per ounce from nearly $1,500 at the start of the year, and the shares of miners have enjoyed significant gains. But when I look at UK gold stocks, I continue to see compelling earnings multiples. And profitable producers paying attractive dividends.

My five best shares to buy

Bank of America caused a bit of a stir last month. In a report titled ‘The Fed can’t print gold’ it put an 18-month target on the yellow metal of $3,000 per ounce. However, I think owning shares in gold miners is the way to go. The ones that appeal to me are lower-cost producers. These companies can really make hay when prices are high, but also remain profitable at times when prices are softer. Dividends, which you don’t get from owning the metal itself, are another big attraction.

There are some potential disadvantages to owning gold stocks. Below-par operational performance is one risk. And as the mines of most UK-listed gold companies are in far-flung places, currency risk is another.

However, I reckon the risks can be mitigated by owning a small basket of mining stocks. To this end, my five best shares to buy are Polymetal, Centamin, Highland Gold Mining, Caledonia Mining, and Trans-Siberian Gold

Production and costs

The table below summarises the locations of the operations of the companies, and their guidance on 2020 production (ounces) and all-in sustaining costs (AISC).

 

Ounces

AISC ($)

Polymetal

1,600,000

850–900

Centamin

510,000–540,000

870–920

Highland

290,000–300,000

791*

Caledonia

53,000–56,000

951–1,033

Trans-Siberian

38,000–42,000

900–1,000

* Historic performance; no forward guidance.

As you can see, AISC looks good against a current gold price of over $1,700 per ounce. Only Caledonia’s cost guidance range goes above $1,000. And this is set to fall with the completion of a project this year delivering a large uplift in annual production from next year.

Earnings multiples and dividends

Of course, as well as production and costs, the valuation of the companies’ shares is a major consideration. The table below shows their recent share prices and market capitalisations, and their price-to-earnings (P/E) ratios and dividends yields.

The P/Es and yields are based on analysts’ earnings and dividend forecasts for 2020, with the exception of Trans-Siberian. It is releasing its 2019 results next month, and the forecasts are for that year.

 

Operations

Share price (p)

Market cap (£m)

P/E

Yield (%)

Polymetal

Russia and Kazakhstan

1,646

7,766

11.3

5.0

Centamin

Egypt

166

1,919

12.9

5.2

Highland

Russia

259

943

9.7

5.0

Caledonia

Zimbabwe

1,223

141

7.1

2.2

Trans-Siberian

Russia

81

71

8.3

6.0

The P/Es range from undemanding for the two largest companies (FTSE 100-listed Polymetal and FTSE 250 member Centamin) to cheap sub-10 territory for the other three (all listed on the FTSE AIM market).

Four of the stocks have highly attractive dividend yields of between 5% and 6%. Meanwhile, Caledonia’s 2.2%-yielding dividend is covered over six times by earnings, giving scope for the board to ratchet-up payouts in the future.

Is Covid-19 a risk to my best shares to buy?

The five miners have so far seen no significant impact from Covid-19 on their operations. It remains a risk. However, I think this geographically diversified basket of stocks offers some protection against an adverse development in any one country or region.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Surely, the Rolls-Royce share price can’t go any higher in 2025?

The Rolls-Royce share price was the best performer on the FTSE 100 in 2023 and so far in 2024. Dr…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

Here’s how an investor could start buying shares with £100 in January

Our writer explains some of the things he thinks investors on a limited budget should consider before they start buying…

Read more »

Investing Articles

Forget FTSE 100 airlines! I think shares in this company offer better value to consider

Stephen Wright thinks value investors looking for shares to buy should include aircraft leasing company Aercap. But is now the…

Read more »

Investing Articles

Are Rolls-Royce shares undervalued heading into 2025?

As the new year approaches, Rolls-Royce shares are the top holding of a US fund recommended by Warren Buffett. But…

Read more »

Investing Articles

£20k in a high-interest savings account? It could be earning more passive income in stocks

Millions of us want a passive income, but a high-interest savings account might not be the best way to do…

Read more »

Investing Articles

3 tried and tested ways to earn passive income in 2025

Our writer examines the latest market trends and economic forecasts to uncover three great ways to earn passive income in…

Read more »

Investing Articles

Here’s what £10k invested in the FTSE 100 at the start of 2024 would be worth today

Last week's dip gives the wrong impression of the FTSE 100, which has had a pretty solid year once dividends…

Read more »

Investing Articles

UK REITs: a once-in-a-decade passive income opportunity?

As dividend yields hit 10-year highs, Stephen Wright thinks real estate investment trusts could be a great place to consider…

Read more »