The sunny outlook for gold prices convinces me that Randgold Resources (LSE: RRS) should remain a lucrative dividend bet for some time to come.
As I said last time out, owning stocks with exposure to store-of-value assets like precious metals is a great idea as security for when bearish investor sentiment washes over financial markets and sends prices of riskier asset classes through the floor. This is why I would be happy to load up on the likes of Randgold Resources and to let it sit in my portfolio undisturbed.
An added bonus of investing in gold shares rather than the underlying asset itself is that investors can often latch onto chunky dividends. Bullion, by comparison, offers zero interest or dividends.
As I say, Randgold Resources is a particularly enticing bet for income chasers. With earnings expected to rise 26%, in 2018 the FTSE 100 digger is predicted to lift the annual payout to 315 US cents per share from 200 cents last year, meaning investors can bask in a gigantic 3.9% yield.
The cheery news keeps on coming too. With profits expected to improve an extra 7% in 2019, Randgold is predicted to lift the dividend to 387 cents, a projection that blasts the yield to an even better 4.8%.
Gold remains well bought
Now it’s no mystery why City boffins are optimistic that the Footsie firm can keep profits — and thus dividends — chugging higher for much longer.
First off, while gold prices may have retraced from the $1,350 per ounce barrier in recent sessions, the yellow metal remains pretty well bought and ready to surge to fresh multi-month peaks at some point.
As I have said before, there remains plenty of political turmoil over in the States that could prompt a fresh downtrend in the dollar, a significant factor in the direction of commodity prices of course. Uncertainty over the future of the Trump administration could feed directly into renewed appetite for less risky asset classes like gold.
Looking further afield, the growing geopolitical tension between Russia and the West should also keep gold prices bubbling as buyers consider a potential ‘Doomsday Scenario.’ A deterioration in the recent goodwill between North Korea and its historical foes could cause market sentiment to sour too.
In terms of economic action, everlasting fears concerning an overdue stock market correction also continue to linger, and a possible implosion in equities could of course make gold the flavour of the month again. Meanwhile, a recovery in Chinese and Indian physical demand on the back of robust economic conditions should also keep gold prices steady.
Analysts are also expecting earnings to surge at Randdold again in 2018 and beyond, thanks to the efforts it is making to turbocharge production.
Just this week chief executive Mark Bristow told the market that underground development at its Kibali mine in the Democratic Republic of Congo remains on course to produce 730,000 gold ounces in 2018, a target which represents a 22% rise on last year’s levels. And Randgold is on track to develop three new projects in Africa over the next five years.
A forward P/E ratio of 22.1 times may appear expensive on paper. But I would argue that a corresponding PEG reading of 0.9 suggests that Randgold is actually exceptionally priced relative to its growth prospects. I reckon the digger is a splendid income pick right now.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.