Investing in Silver Stocks

Silver is a unique precious metal. It’s essential for many industrial applications. Silver is the best electrical and thermal conductor of all metals, making it highly valued for electrical applications. Because of that, more than half of silver’s demand comes from the industrial sector.

Silver is also highly valued by investors because it shares many of the same investment characteristics as gold. A safe-haven metal, silver can help investors hedge against inflation and weather an economic downturn. It can also help provide investors with more portfolio diversification.

Here's a look at how to invest in silver without having to buy the physical precious metal.

Top silver stocks in 2024

Many companies in the metals sector mine silver. However, most mining companies focus on producing industrial metals such as iron ore, copper, and aluminum. They often produce silver as a byproduct. Meanwhile, companies that mine precious metals tend to focus on gold. Consequently, even though many companies mine some silver, it often contributes a relatively minor portion of their revenues.

Although these factors limit the available silver investment options, a few top silver stocks stand out:

1. First Majestic Silver

First Majestic gets 51% of its revenue from silver and the other 49% from gold. That makes the mining company one of the purest plays on silver in the mining sector.

Although it’s a Canadian company, First Majestic focuses on Mexico because it produces more silver than any country in the world. The company currently operates three mines in Mexico and has several other silver mines under development. First Majestic also operates the Jerritt Canyon Gold Mine in Nevada.

First Majestic’s focus on producing silver positions it to outperform the precious metal’s price. It can increase production while reducing costs, which should grow profits faster than silver prices. However, its business model also makes it vulnerable to operational problems and cost overruns. Mining issues, management missteps, and exposure to other commodities can weigh on the performance of a silver mining company's stock.

First Majestic believes it can be a long-term outperformer. It aims to become the world’s largest primary silver producer. It’s investing millions of dollars each year in finding and developing new silver mines.

2. Pan American Silver

Pan American Silver controls the world's largest silver reserves following its acquisition of Yamana Gold in 2023. The acquisition increased the company's silver production by 50% and more than doubled its gold output. It also enhanced Pan American Silver's long-term silver production growth profile.

The company has several medium and long-term growth projects to expand its silver production in the future. It's developing the MARA project in Argentina and plans to return the Escobal mine in Guatemala to production.

Pan American Silver also stands out for its rock-solid balance sheet, even after the Yamana Gold deal. It helped fund part of that transaction by selling Yamana's Canadian assets to Agnico Eagle Gold (AEM 0.31%). Its business generates free cash flow, enabling it to fund expansions while returning cash to investors via dividends and share repurchases.

That combination of financial strength and long-term upside to silver makes Pan American Silver a potentially compelling option for investors.

3. Wheaton Precious Metals

Wheaton Precious Metals is a precious metals streaming company. Instead of operating physical mines, Wheaton provides mining companies with cash to cover portions of their mine development costs. In exchange, the company receives rights to buy some of the metal produced by the mines at fixed prices.

The company got about half its revenue from silver streams in 2022. Most of the rest came from gold, while some came from other metals like cobalt. Wheaton expects its silver streams to account for about 40% of its production mix between 2022 and 2032 as the production of gold and other metals grow while silver output declines. The company's exposure to silver is the highest among its streaming and royalty competitors.

Wheaton has the contractual right through 2027 to purchase silver for an average price of $4.92 per ounce. Any silver price above that level generates profit for the company.

The company's focus on streaming enables it to produce lots of cash. Wheaton uses the money to invest in new streams and pay dividends to shareholders. The company has a flexible dividend policy, paying out about 30% of its average operating cash flows over the previous four quarters.

Wheaton's business model enables it to profit from rising silver prices like a mining company. However, it assumes fewer risks and potential cost overruns associated with physical mining. That makes it a lower-risk way to invest in precious metals like silver.

4. iShares Silver Trust

The iShares Silver Trust is an exchange-traded fund (ETF) that focuses on physical silver. The ETF aims to track the performance of the price of silver by owning silver bars stored in bank vaults in London and New York City.

Because the ETF holds physical silver, it tracks the precious metal's price relatively closely. The chart below demonstrates how the price of iShares Silver Trust shares has changed with the price of silver:

The ETF has largely matched the price of silver over the long term. Investors get this solid performance for a reasonable cost since the fund's annual expense ratio is 0.5%, which is a good ETF expense ratio overall. It’s a small price to pay to invest in silver without having to own the precious metal or face the operational risks of silver mining stocks.

Related metals sector topics

Is investing in silver stocks right for you?

The price of silver can be volatile. The silver price ebbs and flows as economic, inflationary, and geopolitical fears rise and subside. Those catalysts affected the price of precious metals, mining stock prices, silver and gold ETFs, and cryptocurrencies.

However, silver’s investment properties are only part of the story. As previously mentioned, silver is an important industrial metal. In particular, it’s essential for clean energy. The fast-growing solar energy and electric vehicle (EV) industries are two notable industrial demand drivers.

Because of that, demand for silver should grow in the coming years, which could drive its price higher. That makes silver a potential way to play the growth in clean energy.

Most investors choose to own silver stocks over the physical metal such as coins and bars. When the demand for silver is rising, silver companies can often pursue growth opportunities enabling them to expand their profits faster than silver prices rise. That should allow them to outperform the precious metal. Not owning the physical metal also enables investors to avoid the hassles and risks of acquiring, storing, and insuring a physical asset.

As a unique precious metal with industrial, consumer, and investor demand, silver is playing an increasingly important role in the economy. As a result, silver mining stocks and silver-focused ETFs could be attractive additions to many portfolios.