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Why Shares of Franco-Nevada Rose 10% in 2021

By Scott Levine – Jan 12, 2022 at 11:24AM

Key Points

  • Wall Street repeatedly recognized upside to the stock.
  • The company raised its quarterly dividend more significantly than it had in 2020.
  • Franco-Nevada consistently beat analysts' earnings expectations.

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The price of gold may have slipped last year, but this gold stock climbed higher.

What happened

Looking at the performance of a gold-focused stock like Franco-Nevada (FNV 4.92%) in 2021, you'd expect to see that the stock had fallen. After all, there's a strong correlation between the movements in the price of gold and those of stocks that are tied to the yellow stuff. But that's not the case with Franco-Nevada, which ended 2021 10.3% higher than when it began, according to data from S&P Global Market Intelligence.

What motivated investors to add some luster to their portfolios with the royalty and streaming company? For one, Wall Street waxed bullish on the stock's prospects throughout the year, while the company's consistently strong earnings reports and dividend raises represented additional catalysts.

A gold bar on one hundred dollar bills.

Image source: Getty Images.

So what

While Franco-Nevada didn't sparkle in analysts' eyes in February -- Stifel and CIBC both reduced their price targets -- Wall Street turned bullish on the stock as the year progressed. Through the first half of 2021, Franco-Nevada found itself subject to several upgrades, and bulls continued to favor it in the latter part of the year as well. In October, for example, Canaccord Genuity upgraded the stock to buy from hold, and two months later, H.C. Wainwright initiated coverage with a buy rating and $167 price target, representing upside of about 25% at the time of the analyst's action.

The allure of a higher dividend provided an additional motivating factor for investors in 2021. In May, Franco-Nevada announced a 15.4% increase to its quarterly dividend per share from $0.26 to $0.30 -- a notably higher raise than the 4% increase to its quarterly payout that it announced in May 2020.

Consistently exceeding analysts' expectations, Franco-Nevada reported quarterly earnings throughout 2021 that surpassed the Street's estimates. Besides the bottom-line beats that the company racked up in the first six months of the year, Franco-Nevada booked surprisingly strong results in the second half of the year. The company reported earnings per share of $0.96 for Q2 2021 and $0.87 for Q3 2021, beating estimates of $0.93 and $0.85, respectively. 

Now what

Whether simply looking to diversify their holdings or seeking to fortify their portfolios against market volatility, investors turn to gold stocks like Franco-Nevada for a variety of reasons. Unlike gold producers, this royalty and streaming company acts more like a niche financier, providing upfront capital to mining companies that develop projects in exchange for a percentage of the mined mineral or the ability to buy the mined mineral for a preset price -- a business model that gold-hungry investors oftentimes prefer since it represents lower risk than investing in gold mining companies.

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

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