With fall foliage furnishing hues of gold, many of us, undoubtedly, yearn for warm mugs of cinnamon-spiked apple cider. Less appetizing, though, is the rampant political uncertainty and fear of another stock market crash, leaving plenty of investors turning to gold stocks as a way to mitigate risk.
But where exactly to turn? Investment opportunities in the yellow metal are varied and can seem overwhelming to those unfamiliar with the gold market. Fortunately, the answer is simple. No -- it's not to start pawning less desirable jewelry. Instead, investors can simply look to one of the industry's most alluring options: Kirkland Lake (NYSE:KL).
A lustrous balance sheet
Over the past two quarters, many companies have struggled with restrictions placed on their operations due to COVID-19 -- restrictions that have led to companies eating into their cash piles. But that hasn't been the case with Kirkland Lake; in fact, the company's financial well-being has improved.
Although Kirkland Lake will officially report third-quarter earnings on Nov. 5, the company provided a clue as to what investors can expect during the earnings report a couple of weeks ago in a Q3 update. According to the the sneak peek, Kirkland Lake had increased its cash on hand 58%, quarter over quarter, to $848 million. In addition to revenue from the sale of 332,000 gold ounces in the quarter, management attributed the growth in its position to the sale of its 32.6 million shares in Osisko Mining, which represented $109 million, and $75 million which it collected from Newmont Mining related to a newly forged strategic alliance.
Another nugget worth noting regarding the company's balance sheet is that it has no debt. Prior to the appearance of COVID-19, mining companies often relied significantly on debt to finance their growth projects, so for Kirkland Lake to have no debt now is an especially noteworthy point.
Continued interest in rewarding shareholders
Granted, gold stocks aren't leading the pack in terms of top options among dividend investors, but Kirkland Lake's attention to its dividend is a worthy reason to give this stock some consideration. After all, there are plenty of gold stocks that don't offer a dividend at all.
In the Q3 update, Kirkland Lake announced a 50% hike to its quarterly dividend to $0.1875 per share. Effective for the fourth-quarter payment, the increase in the dividend results in the stock offers investors a forward dividend yield of about 1.64%. This recent increase is hardly the only attention that the dividend has received from management this year. In the first quarter, for example, management had doubled the quarterly dividend to $0.125 per share. With the company's generous dividend raises, skeptical investors may wonder whether the company is jeopardizing its financial health to keep shareholders happy. Since the company hasn't taken that tack before, it's unlikely that it's going to start now. Over the past three years, Kirkland Lake's annual payout ratio has averaged 5.6%, according to Morningstar.
Focus on the future
While strong gold production is essential for a precious metals mining company like Kirkland Lake, it's also critical that the company replenish its depleted gold reserves, ensuring that its future will remain bright. Although the company hasn't formally updated its mineral reserves, it did acknowledge encouraging successful results from its exploration program -- results that may portend increases to its mineral reserves in the future.
First, Kirkland Lake reported success from exploration at Detour Lake, an asset which the company acquired earlier this year. In the Q3 update, Tony Makuch, president and CEO of Kirkland Lake, stated that the company is "achieving very encouraging exploration results early in our drill programs at Detour Lake, which support our view that we can generate substantial growth in Mineral Reserves, which in turn will lead to higher production levels and improved unit costs going forward."
In addition, the company reported success at Fosterville, located in Australia. Besides discovering higher-than-expected gold grades in the Swan Zone, the company also "confirmed substantial scale of mineralized systems at Cygnet, Robbin's Hill and Harrier" in areas beyond known mineral reserve and mineral resources -- an auspicious opportunity that may contribute to future gold production.
You want a stake in Kirkland Lake
While the price of gold has soared about 22% in 2020, shares of Kirkland Lake remain attractively priced. Trading at 10.6 times operating cash flow, Kirkland Lake's stock is nominally higher than its five-year average cash flow multiple of 10.3, and it's a bargain compared to its 2019 ratio of 10.7. For gold-hungry investors, Kirkland Lake is an ideal way to glitterize their portfolios, and it will be especially interesting to see what the company reports on Nov. 5.