A "Contrarian Outlook" for Gold Streamers

06/30/2020 5:00 am EST


Brett Owens

Chief Investment Strategist, BNK Invest, Inc.

Royal Gold (RGLD) is one of my favorite "go to" plays on gold. It's my kind of company — high on assets and cash flows, and light on the number humans that work there, asserts Brett Owens, editor of Contrarian Outlook.

The firm owns royalty rights for gold exploration. An amazing 70% to 75% of its revenue drops to its bottom-line profits. The firm's secret? It doesn't actually mine anything.

The company peddles precious metal (mostly gold) rights, royalties and interests. Royal Gold lets its partners do the heavy lifting (actual mining). Thanks to this "capital light" model, the firm collects an impressive $18.4 million dollars per year per employee (number two in the entire S&P 500 according to S&P CapitalIQ).

As with any good business model, let's also keep an eye on Royal Gold's competitors. Fellow precious metal royalty firms Franco Nevada (FNV) and Wheaton Precious Metals (WPM) also mint money when the metals are heading higher.

Gold isn't the only precious metal that rises with inflation expectations. Silver, platinum and even palladium are all candidate homes for paper money.

All three of the royalty streaming stocks pay dividends. At 1% annually we are not going to retire off of these dividends alone. We can, however, double our money in a very short period of time. And hey, in a world where savings accounts pay zero, a modest yield with 100% upside isn't bad at all.

I'll be keeping an eye on these royalty "streamers" for a potential entry point. For now, I do anticipate the upper hand will shift back towards deflation in the near-term. And that a stock market plunge may make the Fed print more — which may then further set the stage for inflation — and so on.

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