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Why Royal Gold, Inc. Stock Jumped 28% in June

By Reuben Gregg Brewer - Jul 10, 2016 at 9:06AM

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Royal Gold had a nice rally in June; here's what's behind the numbers.

Image source: Royal Gold.

What: Royal Gold, Inc.'s (RGLD -1.19%) share price rose by just over 28% last month. That brings the full-year rally to over 90%, but from the mid-January lows, the stock is up even more at just over 150%.

So what: There's no question that the advance in gold prices since mid-January has a lot to do with Royal Gold's share price advance this year. And last month was no different, with gold up around 9%. But that's not the whole story.  

June was an active month for Royal Gold on the communication front. It hosted an investor day on June 3. 2016 followed by two more presentations over the ensuing 11 days. Essentially, Royal Gold got out and told its story, which is fairly compelling. How compelling, you ask?

Some key highlights from these presentations include a 15-year history of annual dividend increases despite a gold downturn that led many miners to cut their distributions, a crop of new investments over the last year or so that materially increased the company's reserves, the conservative use of capital compared to peers, and perhaps most notably, a stock that has been trading at a discount to its historical price to cash flow ratio.  

That last one is interesting because gold prices are on the rise, and so are the prices of gold miners. It suggests investors may be mispricing Royal Gold. Clearly, the company is trying to paint itself in the best possible light in its presentations, so you need to take these things with a grain of salt. In truth, though, there's a lot to like about this precious metals streaming and royalty company.

Now add in economic concerns, and gold companies, particularly well positioned ones, are even more appealing. For example, Royal Gold's shares advanced nearly 10% in early June after a weak jobs report. That helped out peers, too, like Barrick Gold (GOLD 0.44%), which was up 27% in June and saw a larger bump on the jobs report. Also, by the end of June, investors had begun to worry about the Brexit issue, too, providing further support to precious metals companies.

Mix all of this together, and June was pretty good for Royal Gold and its shareholders.

Now what: To be fair, Royal Gold probably doesn't offer the same recovery potential if gold prices really start to take off, but during the precious metals downturn, it held up much better than other miners and continued to reward investors with increasing dividends. So, for more conservative investors, Royal Gold is worth a deeper look. And that remains true despite the price advance in June.

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Stocks Mentioned

Royal Gold, Inc. Stock Quote
Royal Gold, Inc.
$116.60 (-1.19%) $-1.40
Barrick Gold Corporation Stock Quote
Barrick Gold Corporation
$20.52 (0.44%) $0.09

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