The precious metals markets have been volatile lately, and silver-streaming specialist Silver Wheaton (WPM 2.43%) and silver miner Hecla Mining (HL 4.04%) have seen their stocks move sharply in response to changing industry conditions as well as to the geopolitical and macroeconomic climate in the U.S. and worldwide. Lately, silver has been on an upswing, and investors are wondering which of these two silver plays is the better place to put new money to work. Let's compare Silver Wheaton and Hecla Mining on several key metrics to see which looks more attractive currently.
Stock performance and valuation
Silver Wheaton and Hecla Mining have seen amazing share-price appreciation over the past year. Silver Wheaton is up an impressive 64%, but Hecla has climbed through the roof, more than tripling since November 2015.
Comparing Silver Wheaton and Hecla using the simplest valuation techniques is challenging because of the losses that the two companies had suffered prior to silver's latest rebound. In the case of Silver Wheaton, substantial impairment charges have caused the company to post a net loss over the past year. Hecla, meanwhile, has fought against a high cost structure that has inhibited its ability to turn a profit on its operations.
However, with precious metals prices having climbed recently, investors expect Hecla and Silver Wheaton to turn profits going forward. Based on those future earnings projections, the two stocks have very similar valuations. Silver Wheaton currently trades at a bit more than 20 times forward earnings, while Hecla carries a forward multiple of just less than 20. Even after Hecla's big share-price increase, both stocks look equally valued at the present time.
Precious-metals companies aren't known for their dividends, and Silver Wheaton and Hecla stand out for paying any dividend at all. Yet income investors won't be excited about either stock. Hecla pays out just a $0.0025 per share quarterly dividend that works out to a yield of less than 0.2% at current prices. Silver Wheaton has been more generous, but its current $0.06 per share quarterly payout works out to just 1.2% in dividend yield.
In terms of dividend growth, it remains to be seen to what extent Hecla and Silver Wheaton will respond to improving conditions with stronger payouts. Silver Wheaton has already made a move, boosting its latest quarterly payout by $0.01 per share, or 20%, in response to better free cash flow figures. Even with the boost, Silver Wheaton is still paying less than half of what it did at its peak in early 2013. For Hecla, dividends are linked to average realized silver prices, and with a current $30 per ounce minimum and silver below $20 per ounce, investors shouldn't expect a return to higher dividend levels anytime soon. That gives Silver Wheaton an edge over Hecla on the dividend front.
Silver Wheaton and Hecla took steps during the previous downturn to ensure their future growth. For Silver Wheaton, new financing opportunities were abundant when miners were struggling, and the company branched out by entering into many new gold streaming arrangements to complement its silver streaming exposure. In its most recent quarter, Silver Wheaton announced a quarterly profit, reversing its year-ago loss and producing record amounts of gold. The company cut back its silver production guidance for the full year, however, and although gold increases made the net effect on the company roughly flat, Silver Wheaton will need to keep fighting to take advantage of better prices in the precious metals market as long as they last.
Meanwhile, for Hecla, better times have also led to a more attractive profit picture. In its most recent quarter, sales jumped more than 70% to hit record levels, and adjusted pre-tax operating income more than quadrupled from the year-ago period. Total silver production was up by two-thirds, and a rise in gold production helped Hecla have positive free cash flow. The completed acquisition of the Montanore project shows that Hecla hasn't hesitated to take strategic risks during the downturn to take advantage of cheap assets, and that appears to be paying off. If prices behave well, then Hecla stands to benefit even more.
Silver Wheaton and Hecla have attractive growth prospects, and each is tied to the success of the precious metals markets going forward. Hecla arguably has more room to rise, but Silver Wheaton offers the benefit of not having direct exposure to mining-related operational challenges that can hurt a miner like Hecla even when market prices are strong. That makes Silver Wheaton an arguably better choice for risk-averse investors, while Hecla has more upside for those who are more risk-tolerant.