Royal Gold, Inc. (RGLD 0.21%) isn't your typical precious metals miner that's digging gold and silver out of the ground -- it's a streaming and royalty company. That makes Royal Gold more of a specialty finance company, with a portfolio of nearly 200 properties (40 producing) that gets paid in gold and silver. It never gets directly involved in mining, which changes how you should think about its performance -- slow and steady progress is the desired goal as portfolio investments start to bear fruit. And while there wasn't a single big win for the company in 2017, it was still a year to remember because a number of little things went well, again. Here are some examples.
1. One more hike
The first thing that I always like to see at Royal Gold is a dividend hike. The company delivered again on that score in 2017, with a 4% increase. That may not sound like a big boost, and it isn't. But it did keep investors' income growing faster than inflation, which has historically risen 3% (or so) a year.
The bigger picture here, though, is that Royal Gold's annual streak of dividend increases is now up to an impressive 17 years. And with another 4% hike already announced for the first quarter of 2018, it looks like year 18 is already in the bag, too. This is an incredible streak for any company, let alone one that operates in a highly cyclical commodity industry. This by itself made 2017 a year to remember in my book.
2. A step up
However, the dividend increases are more a symbol of success, with a portfolio of solidly performing investments underpinning the ability to keep that streak alive. On that score, last year saw a notable increase in cash from operations, with a 50% jump between fiscal 2016 and fiscal 2017. The company's fiscal years end in June, so that success really dates back to 2016. But the solid performance has continued into the second half of calendar year 2017.
Indeed, trailing-12-month cash from operations was higher at the end of the calendar-year third quarter than it was at the midpoint of the year. So management is still maintaining the positive momentum, despite a gold price that hasn't done much lately.
3. Going according to plan
A fairly steady uptrend in results is the desired outcome from Royal Gold's diversified portfolio of investments. While it isn't a miner, it can't avoid all of the issues associated with gold and silver. For example, as older mines age, precious metals production often starts to diminish -- and then falls off completely when the mine is exhausted. That's why Royal Gold has so many investments, most of which are in some stage of development. As older investments mature, new ones come on to take their place, or at least that's the plan.
Increasing cash from operations is one sign that management is executing well. But seeing physical progress at mines is another. On that score, commercial production began on Oct. 19 at the Rainy River mine, one of Royal Gold's many investments. That will give a little additional boost to calendar year 2017's production and a much bigger one to 2018, when Royal Gold sees a full 12 months of production from the newly operational mine.
There are two more projects expected to come on line in 2018, too. So yet another sign of 2017's success is the continued progress at the mines Royal Gold has backed. 2018 looks like it will be another year of good news as well.
4. Getting the balance right
That big step up in fiscal 2017 cash from operations was the result of opportunistic investments Royal Gold made during the deep commodity downturn that ended in early 2016. It used debt to fund those investments. The balance sheet remains solid, but with cash starting to flow in, Royal Gold has begun to put that money to work paying down its long-term debt. That's not only prudent, but exactly what you want to see. Long-term debt was reduced an impressive 20% through the first nine months of 2017.
It's perhaps a small step in and of itself, but added to the other positives, it helps to make 2017 pretty memorable. Note, however, that as interest expenses fall, more cash is freed up to pay dividends. So there's going to be a positive impact on 2018 from these balance sheet moves, as well.
5. Better than gold
The last thing that makes Royal Gold's 2017 a year to remember is its stock price advance of around 35%. That's a great number, but it really shines when you compare it to the 9% increase in the price of gold.
That kind of increase won't happen every year, but it gives you an idea of how well Royal Gold can do even when gold itself isn't going higher. And it's all of the little successes noted above that help make that happen, many of them driven, at least partly, by the streaming business model.
Another solid year
Clearly, the price of gold and silver will have a big impact on Royal Gold's results, just like it would at any precious metals-linked company. That said, there were a lot of little successes in 2017 that all added up to yet another great year for investors. That included a dividend hike, a step up in cash from operations, solid results at underlying investments, and a shift to reducing debt after a period of opportunistic investments. And all of that backed Royal Gold's share advance of roughly 35%. You probably won't excite anyone at cocktail parties by saying you own Royal Gold, but that doesn't mean 2017 wasn't an exciting year for shareholders -- one that looks like it's setting 2018 up for even more success.