Image source: Barrick Gold.

When it comes to precious metals companies, a few names easily come to mind. Industry heavyweight Barrick Gold (NYSE:GOLD) is just such a miner. But that doesn't mean it's the best way for an investor to play the space. In fact, here's why you should like lesser-known Royal Gold (NASDAQ:RGLD) over Barrick Gold.

A likable giant

There's nothing inherently wrong with Barrick Gold. The miner has extremely low costs, and they look like they are only going to get better. To put some numbers on that: Barrick's all-in sustaining costs, an industry measure of how much it costs to pull an ounce of gold out of the ground, came in at $831 an ounce last year. That's toward the low end of the industry, but the company thinks it can get that figure down to as low as $725 an ounce by the end of 2018.

Image source: Barrick Gold.

And the quality of its mines is pretty high, too: Barrick's average reserve grade is 1.3 grams of gold per ton, while the average for similarly sized miners is around 0.85 grams per ton. Cheap costs, good assets -- some notable positives here.

But here's an interesting stat: Despite a roughly 190% rally so far in 2016, Barrick is still down around 60% since the commodity market peak in 2011. Royal Gold, meanwhile, is up 50% since 2011.

A better way to play?

How has Royal Gold managed this? For starters, it isn't a gold miner: It's a streaming company. That means it gives miners cash for the right to buy precious metals at reduced costs in the future, which locks in low costs for Royal Gold. The company estimates the carrying value of its gold is around $450 an ounce (this figure is derived by dividing the value of its streaming and royalty agreements by the ounces of gold it expects to buy in the future -- basically, its reserves). So even during the depths of the precious metals downturn, Royal Gold was in a good position on the cost front.

Moreover, unlike miners, who pulled in their horns during the downturn, Royal Gold was able to use the precious metals malaise to grow. In 2015 alone its reserves expanded by 20%. It was able to do this because miners were desperate for cash to shore up their balance sheets, and thus eager to cut streaming deals with companies like Royal Gold. As a comparison, Barrick Gold's production in 2011 was roughly 7.7 million ounces, a number that fell to 6.1 million in 2015 -- that's going the opposite direction.

The future is bright

To be fair, if the gold rally holds up, Barrick Gold probably has more upside potential than Royal Gold. Indeed, as gold prices move higher, miners could be less inclined to cut deals with Royal Gold, or at the very least, get less generous with the terms they're willing to agree to; that would put a crimp in Royal Gold's future. But its work during the downturn should position it well enough to keep raising its dividend.

Image source: Royal Gold.

And that's where Royal Gold really shines. The precious metals company has upped its annual payout for 15 consecutive years -- right through the precious metals downturn. Barrick Gold, meanwhile, had to cut its dividend a couple of times over that span. That helps explain why Royal Gold's shares are up since the peak of the gold rally, and Barrick's stock price is still trying to claw its way back from the abyss.

It would be a bit much to suggest that Royal Gold's shares are low-risk. However, they've clearly held up better than Barrick and most other miners through the downturn. Add in the steadily growing dividend, and the allure of Royal Gold only increases. Sure, a miner like Barrick has more turnaround potential at this point if the gold rally continues -- after all, it's still down 60% from its peak. But Royal Gold's dividend profile and built-in low costs provide some downside protection if the gold rally falters.

After a big upturn this year for miners like Barrick, it might make sense to lean toward a more conservative name like Royal Gold.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.