I’m looking for the best FTSE 250 dividend stocks to buy today. And I think picking up a slice in a gold-producing company could be a good idea.
Investing in firms that produce the yellow metal allows you to ride the profits boom when prices are high. And unlike buying bullion itself, or a gold-backed financial instrument (like an ETF) that tracks the commodity price, investing in certain shares provides the added bonus of dividend income.
FTSE 250-quoted Centamin (LSE: CEY) is one of those companies that pays a dividend to investors. And yields at this particular UK mining share are currently sitting at delicious levels. For 2021, this comes in at 6.7%.
The danger for investors is that gold prices can go down as well as up, damaging company profits in the process. But it’s my opinion that metal values should remain strong. I think safe-haven demand for gold will be supported by the ongoing Covid-19 crisis and its threat to the global economy. I’m also encouraged by signs that global inflation could be poised to spike to shocking levels.
Rising inflation
New Bank of England chief economist Huw Pill, for example, has just warned that UK inflation could rise above 5% in early 2022. It wasn’t that long ago that Threadneedle Street was warning that recent inflationary jumps would be temporary. Commodities that can be used as currencies like gold tend to rise strongly when concerns over the true value of paper money come under scrutiny.
Centamin also offers terrific value from an earnings perspective. City brokers think the firm’s earnings will rise 13% in 2021. This leaves it trading on a forward price-to-earnings growth (PEG) ratio of just 0.9. A reminder that a value below 1 suggests a UK share could be undervalued.
Production beats forecasts too
I believe Centamin should be trading more expensively than its current price of 97p per share. I’m not just convinced by what I consider to be a strong outlook for precious metals prices either. Strong production numbers in recent weeks reinforces my belief the business should be trading above penny stock territory.
This week, Centamin said it pulled 103,546 ounces of gold out of the ground in the third quarter. This was above expectations and also up 3% quarter-on-quarter.
Meanwhile, cash costs fell 4% in the third quarter, to $846 per ounce. Finally, in other news, Centamin said development work at its flagship Sukari mine in Egypt had “progressed well” in the second quarter.
A FTSE 250 share I’d always hold
Shares like Centamin often perform best when times are tough and demand for flight-to-safety assets like gold heats up. But I believe having exposure to gold could be a good idea at all points of the economic cycle. As we saw in 2020, financial shocks can happen in the blink of an eye.
Owning gold-producing companies serve as a useful insurance policy to protect against this. I’d buy Centamin specifically for my own shares portfolio on account of that gigantic dividend yield and low valuation.
