I would consider heavy share price weakness at big-dividend-paying Randgold Resources (LSE: RRS) as a tip-top buying opportunity.
The gold digger’s share price has skidded more than 25% lower in the year to date, its share action reflecting the steady slide in bullion values. The precious metal has fallen below the $1,300 per ounce marker seen at the start of the year and, with central banks engaging in further monetary tightening recently and the US dollar strengthening, it now trades within a whisker of the $1,200 watermark as of pixel time.
However, signs are emerging that this harsh selling activity could be starting to die down. The World Gold Council’s latest report showed outflows in gold-backed exchange-traded funds slowing in July — 39 tonnes of material was sold last month, taking total holdings to 2,394 tonnes. This is a slowdown from the 49 tonnes sold off in June.
These figures don’t warrant breaking out the fireworks, clearly. But they could be a sign that gold demand could be on the turn. That wouldn’t be a surprise to me as the chances of an economically-disruptive Brexit, intensifying trade wars between the US and, well, everyone else, and the chances of a sharp economic slowdown in the eurozone remain high.
That said, though, it would not surprise me if Randgold’s share price suffered in the aftermath of second-quarter financials scheduled for tomorrow (August 9).
The company has endured strike action at its Tongon mine in Côte d’Ivoire in recent weeks, and this, allied with troubles at the complex earlier in the year, could force the business to downgrade its full-year production estimates.
Still, over a medium-to-long-term time horizon I believe Randgold remains a compelling selection. I am still convinced there is plenty of macroeconomic and geopolitical strife in the system that should keep precious metals prices broadly stable, and the Jersey-based digger is well positioned to benefit from this environment via measures like the ramp-up of output at its Kibali asset in the Democratic Republic of Congo and moves to forward the Gounkoto super-pit project in Mali.
In the meantime, City analysts are forecasting earnings rises of 5% in 2018 and 17% next year. It’s true that the operational troubles seen earlier this year could blow these forecasts a little off course, although I think dividend projections are looking fairly robust.
The number crunchers are predicting payouts of 280 US cents per share this year and 370 cents in 2019. These forecasts may be roughly in line with estimated earnings through to the end of next year, but I am convinced the mining giant’s robust balance sheet should help it weather any bottom line troubles and keep payouts rising. Randgold’s cash and cash equivalents rose 3% quarter-on-quarter in the three months to March, to $739.5m, and it has no debt on its books.
A forward P/E ratio of 22.8 times may be expensive, but I believe the FTSE 100 company’s robust long-term profits outlook makes it worthy of such a premium. Besides, chunky dividend yields of 4% for this year and 5.2% for next year help to take the edge off. I reckon Randgold is a brilliant income share to load up on. Just hold off until those second-quarter results come out, maybe!
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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.