Dividend Stocks

Barrick Gold Has Delivered Value, But GOLD Stock Dithers Out of Fear

Barrick Gold (NYSE:GOLD) produced significant results last year, achieving all of the gold and copper mining company’s forecasts. But the stock didn’t reciprocate. GOLD stock has actually fallen 6.4% over the past year, as of the time of publication. And year-to-date, it is down 7.4%.

Source: Piotr Swat / Shutterstock.com

It’s almost as if the market says, yes, you had great numbers, but we don’t think you can keep it going. The stock seems stuck in a rut.

It can’t rise because the market is afraid that the earnings from mining are at a peak. But if Barrick Gold doesn’t perform according to its own guidance, the stock will absolutely drop. That is a terrible position to be in. Nevertheless, Barrick Gold believes its earnings will continue to do well this year.

Earnings and Forecasts

Last year, the company met its production targets for 2020. The company said that higher gold and copper prices boosted its free cash flow (FCF) to all-time highs. Its annual free cash flow rose to $3.4 billion. Given that the stock has a market value of $37.7 billion, the FCF yield is 9%. This is very attractive.

The bottom line was that it made $1.15 earnings per share on an adjusted basis, up 125%. At $20.99 as of market close on April 12, that puts the stock on a historical price-to-earnings (P/E) ratio of 18.25 times.

Moreover, the company now has no debt, net of cash. This is quite an achievement, given that in 2013 it had as much as $13.4 billion in total debt.

The company paid out 31 cents per share in dividends. Moreover, analysts now expect at least 36 cents per share in 2020, based on the 9-cent per share dividend paid out in Q1. This gives GOLD stock a forward dividend yield of 1.72%.

In addition, the company has said that it plans on doing a special return of capital payment to shareholders of 42 cents per share. Barrick Gold has said the payment would be in three equal tranches of 14 cents to shareholders of record on dates to be determined in May, August and November. The special dividend will be proposed and voted on during the annual meeting on May 9. The payments will be on top of the 9-cent quarterly dividend.

So, in a way, the stock has a 78-cent per share dividend. That gives GOLD stock a 3.72% dividend yield. But, of course, that assumes that the special dividend will be paid annually.

Where This Leaves GOLD Stock

Part of the reason the stock has not done well is that investors fear that the high price of gold and copper might not necessarily last. But, of course, this is an illusory fear, since there is never any kind of guarantee about high commodity prices.

But, more importantly, the price of gold and copper would only fall dramatically if there was an anticipated recession or a severe drop in demand. Frankly, that does not seem to be in the cards.

Moreover, the company’s shareholder letter indicates that “the return of capital distribution demonstrates Barrick’s commitment to return surplus funds to shareholders.”

The company has been following this policy since 2018, and since then it has both tripled its regular dividend and also paid out return of capital payments. This should give some comfort to potential shareholders that the company’s high dividend yield will continue.

Analysts are fairly positive on GOLD stock. TipRanks.com reports that 9 analysts have an average target of $29.71, or 40.8% over the current price. Moreover, Marketbeat.com says that 15 analysts have a consensus target of $31.25, or 49% higher than today’s price. This should give potential investors a good deal of comfort that they expect GOLD stock to continue rising.

Given its good earnings, low price-to-earnings and high dividend yield, value investors will likely be interested in Barrick Gold. Gold stock is likely to do well as a long-term investment, despite its weakness over the past year.

On the date of publication, Mark R. Hake did not hold a long or short position in any of the securities in this article.

Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.