Gold and silver streaming companies Franco Nevada Corporation (NYSE:FNV) and Wheaton Precious Metals (NYSE:WPM) have very similar business models. Where they differ most is in their dividend policies. My preference here is Franco Nevada, but Wheaton Precious Metals could be the right choice for you. Here's what you need to know.

A little about streaming

The first thing to understand about this pair of precious metals companies is that they are not miners. Franco Nevada and Wheaton Precious Metals are streaming companies. That means they provide miners with cash up front for the right to buy gold and silver in the future at reduced rates. This allows them to avoid the risks of operating mines and lets them lock in low prices and high margins through the cycle.

A man holding a gold ingot

Image source: Getty Images

For example, Wheaton Precious Metals pays around $4 an ounce for silver and $400 an ounce for gold, well below the prices the metals fetch today on the spot market. And EBITDA margins at both Wheaton and Franco Nevada remained solidly in positive territory during the commodity downturn when precious metals miners were watching their margins dip deep into the red.    

Miners agree to these deals for several reasons. The most important being that they get access to cash when other sources, like the capital markets and banks, are more expensive. The recent commodity downturn was a great time for this pair. In 2015 alone Wheaton inked $1.8 billion in new deals and Franco Nevada a $600 million deal. Both had record production in 2016.    

Some subtle difference

That said, there are a couple of subtle differences here. The first is diversification. Wheaton's portfolio of investments contains 29 mines, eight of which are development properties. Franco Nevada is much more diversified with 46 producing mines, 41 development projects, and 172 exploration investments. Both are diversified, but Franco Nevada is notably more diversified.    

Franco Nevada gets most of its revenue from precious metals, but a little bit from energy, too

Franco Nevada has some energy exposure, but precious metals is the big driver of its business. Image source: Franco Nevada Corporation

Franco Nevada also has exposure to oil and natural gas, which Silver Wheaton does not. Franco Nevada's portfolio includes around 80 investment in oil and gas projects with these fuels making up about 5% of revenues. That number should grow over the near term, too, since the company is using the energy downturn as an opportunity to expand its reach in these commodities. So if you want a pure play metals company Wheaton is the better choice, even though gold and silver are the most important part of Franco Nevada's business.    

The really big difference

All of that said, the biggest difference between these two companies is going to come down to your dividend preference. Franco Nevada has increased its dividend every year for 10 consecutive years, including 2017 in that tally. Wheaton Precious Metals' dividend is pegged at 20% of the average cash generated by operating activities in the previous four quarters.    

WPM Dividend Per Share (Annual) Chart

WPM Dividend Per Share (Annual) data by YCharts

This difference is a big deal since precious metals prices will have a notable impact on the top and bottom lines of both companies. Franco Nevada's goal is clearly to provide a consistent stream of income. Wheaton's goal is to reward investors during the good years while asking them to share the pain during the bad years.

Don't instantly dismiss that as less desirable, however. Since gold and silver prices tend to go up when the broader market is going down, Wheaton's dividend is likely to be moving higher when your other investments are struggling and, perhaps, cutting their disbursements. Wheaton could be an interesting dividend portfolio diversification option.

In the end, I favor dividends that slowly grow over time. So when looking at this pair I lean toward Franco Nevada. If your goal is diversification Wheaton's variable dividend might actually work more to your advantage. You just have to understand the dynamics before you jump aboard.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.