In light of a strong third-quarter earnings report, the Franco-Nevada Corporation (NYSE:FNV) stock surged more than 5% in after-market trading on November 11, 2019, to continue the uptrend that delivered 50%-plus asset appreciation over the past year.
Since its incorporation in late 2007, the Franco-Nevada Corporation has delivered consistent asset appreciation with relatively low volatility. In addition to reliable capital gains, the company has complemented the asset appreciation with steady annual dividend income hikes.
Many investors who fear a potential recession are considering reallocating at least a portion of their portfolio into equities and assets deemed more likely to be recession resistant, such as precious metals. While relatively simple and easy, investing in physical gold — gold coins and bullion bars — has many downsides regarding storage and security, as well as liquidity and ease of use in the current commerce dominated by electronic forms of payment and fund transfer. Therefore, another option to gain exposure to precious metal investments are gold streaming companies, such as the Franco-Nevada Corporation.
On November 11, 2019, the company reported third-quarter 2019 financial results. The company reported record quarterly revenues of $235.7 million, which was driven by positive gold price trend and a new volume record of 133,219 gold-equivalent ounces sold during the period.
The company also delivered new adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) record of $192.9 million, or $1.03 per share. In addition to beating earnings estimates, Franco-Nevada’s third-quarter figure of $101.6 million is also a new record. The adjusted earnings per share of $0.54 beat analysts’ expectations of $0.45 by nearly 17%. In light of the third-quarter results the company reaffirmed its original outlook for fiscal 2019 and expects to finish the year near the upper range of its full-year guidance.
“Franco-Nevada’s diversified portfolio performed very well in the third quarter. Record results were achieved across all our important production and financial metrics.” stated the company’s CEO, David Harquail. “We are also very encouraged by the increased exploration and development activity by many of the operators on our royalty properties. For 2019, Franco-Nevada expects to be close to the high end of its previously announced guidance ranges.”
The company’s $0.25 quarterly dividend is 4.2% higher than the $0.24 distribution paid in the first quarter 2019. This new dividend distribution amount corresponds to a $1.00 annualized distribution and a 1% forward dividend yield. The company advanced its annual dividend distribution amount 28% over the past five years. While the dividend growth of nearly 30% is very favorable, the company’s share price rose 75% over the same five-year period. Consequently, Franco-Nevada’s current 1% yield is nearly 21% below the company’s own 1.3% yield average over the last five years.
In addition to trailing its own five-year average the Franco-Nevada current yield is also approximately 70% lower than the 3.7% simple average yield of the entire Basic Materials sector. However, industry segments with traditionally high dividend yields, such as Oil & Gas Pipelines, Oil & Gas Refining & Marketing, or Agricultural Chemicals, push the sector average higher.
While suppressed by the rapid share price advancement, Franco-Nevada’s dividend yield is much more competitive compared to the 1.23% average yield of the company’s peers in the Gold industry segment. Despite the yield pullback driven by asset appreciation, the Franco-Nevada Corporation has enhanced its annual dividend payout every year since beginning dividend distribution payouts in 2008. The total annual dividend payout rose more than four-fold over the past 11 years. That level of advancement is equivalent to an average dividend growth rate of nearly 14% per year.
After losing more than 22% during the first three-quarters in 2018, the share price reversed direction and has been rising since early September 2018 with minimal volatility. The share price reached its 52-week low of $63.34 on November 13, 2018, which was just the second day of the current 12-month period.
After bottoming out that early in the trailing one-year period, the share price embarked on a steep uptrend and recovered all its losses from early 2018 by mid-June 2019. The share price continued its rise and, after setting several new highs, reached its new all-time high of $100.94 by September 4, 2019.
After peaking in early September, the share price pulled back to close on November 11, 2019, at $95.75. While 5% lower than the September all-time high, the November 11, 2019, closing price was still more than 50% ahead of the price one year earlier, 51.2% above the 52-week low from November 2018, as well as 75% higher than it was five years ago.
The robust asset appreciation and steady growth of quarterly dividend income payouts offered Franco-Nevada shareholders strong total returns over the past few years.
Driven mainly by the exceptional share price growth, the company delivered a 52.3% total return over the trailing 12-month period. The share price pullback of nearly 30% in late 2017 and first three quarters of 2018 suppressed the shareholders’ total return to 51% over the past three years. However, with the share price fully recovered and advanced to new all-time highs, the shareholders doubled their investment over the past five years with a total return of more than 98%.
Headquartered in Toronto and incorporated in 2007, the Franco-Nevada Corporation operates as a gold-focused royalty and stream company. In addition to its investments in gold, the Franco-Nevada Corporation also has investments in other precious metals, such as silver and platinum group metals. Additionally, the company invests in the energy sector through streaming and royalty agreements in oil, gas and natural gas liquids. As of October 2019, the company had investments in 372 total assets around the globe. Nearly 80% (291) of those assets were related to precious metals mining and production, with the remaining 81 assets generating revenue from the exploration and production of oil and gas.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.
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