Image source: Royal Gold.
Royal Gold, Inc. (RGLD +2.23%) is a precious metals company, but it isn't a miner. And that's a big part of the reason this streaming and royalty company has been able to reward investors in a way miners haven't. Here are five charts that show you some of the most important facts about Royal Gold.
The dividend stream
The first chart for Royal Gold is probably the most impressive in many ways, particularly for income-focused investors. It's the company's dividend history. Royal Gold has increased its dividend each and every year for 15 consecutive years.
Now that's an income stream. Image source: Royal Gold.
There's a couple of things worth noting, here. First, like other commodities, precious metals markets started to decline in 2011 or so. Miners like Barrick Gold (ABX +2.06%) were forced to cut their distributions. Fellow streaming company Silver Wheaton (SLW +3.61%), which pays a percentage of its net income rather than a fixed dividend, was forced to lower its payout because of lower commodity prices. But Royal Gold was able to keep rewarding shareholders because of its relatively conservative approach to the precious metals business (more on that later).
Second, although the dividend growth hasn't been as robust of late, the compound annual growth rate over the full 15-year period is roughly 20%. The historical rate of inflation is around 3%. So the "pay raises" offered up by Royal Gold have easily kept investors' income streams growing, in real dollars, over time. That's a lot better than buying gold coins and putting them in a safe deposit box!
Not your typical streamer
I noted above that Royal Gold is a streaming company. That means that, like peer Silver Wheaton, Royal Gold provides miners like Barrick Gold cash up front for the right to buy gold and silver at reduced rates in the future. This model keeps Royal Gold's costs down, which is one of the big reasons it's been able to keep upping its dividend.
However, there's a slight wrinkle, here: The streaming companies get the cash they use by issuing stock. Being too aggressive would mean diluting current shareholders with more and more shares outstanding, even though the cash is being put to work in new investments. Luckily for Royal Gold shareholders, that's not what it's all about.
Image source: Royal Gold.
Note that Silver Wheaton's share count has continued to head higher in the chart above, while Royal Gold's hasn't. So as Royal Gold's investments have born fruit, producing increasing amounts of silver and gold, the benefits have been spread over a relatively small base of shareholders. Silver Wheaton, by contrast, has had to spread its results over more and more shares, diluting the benefit of successful investments and exacerbating the impact of falling commodity prices.
Picking the right spots
This isn't to suggest that Royal Gold hasn't been investing, because it has. It's just been vary particular about where and, perhaps equally important, when it puts its money to work. Take a look at the next chart:
Image source: Royal Gold.
The company sold stock when gold prices, and its share price, were still relatively high, in late 2012. It didn't start investing the bulk of that money until 2015, when gold prices had really hit the skids. Basically, Royal Gold waited until miners were desperate for cash and willing to cut generous deals. Those deal were pretty notable, too, increasing Royal Gold's reserves by 20% last year.
If Royal Gold had waited to raise the cash, it would have had to sell more shares. And if it invested the cash right away, it likely wouldn't have gotten quite as generous terms on its streaming deals. So, not only is Royal Gold stingy with issuing shares, it's careful about how it puts the money it raises to work, too. That's the type of approach that could lure even conservative income investors into the often volatile precious metals space.
The portfolio
Another nice thing going on at Royal Gold is diversification. As the chart below shows, in 2000, the company's focus was primarily in the United States. That's not an inherently bad thing, but now it has a much broader footprint, with assets in the United States, Canada, Mexico, Australia, Africa, and Chile, among others. Over that same time span, silver and other commodities have been added to the mix. So, while gold makes up 85% of the company's revenues, it isn't solely reliant on the one metal any more.
Image source: Royal Gold.
Moreover, 80% of the company's mines have reserve lives of 18 years or more. That means there's a lot of room left for its investments to run -- and for Royal Gold to reward investors.
In many ways, Royal Gold is like a specialty finance company that owns a portfolio of mining assets. And, for the most part, it's been managing that portfolio pretty well. Although the real evidence of this is the company's financial performance, the underlying stats on the portfolio are fairly good reading, too.
One for the road...
In the end, Royal Gold isn't your typical miner. What really sets it apart is a conservative business model that has supported a decade and a half of dividend increases. For income-focused investors, Royal Gold is a great option for putting money to work in the gold and silver space. That position is backed up by the next chart:
Gold is often looked at as a hard asset, essentially making it a store of value. The expectation is that it will simply keep up with inflation over time. Royal Gold has done so much better than that. For starters, as noted above, its dividend has grown at roughly 20% a year over the past 15 years. And, as the chart shows, the stock has handily outpaced the broader market, too. If you're looking at gold, you really need to consider Royal Gold.
