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Why I’d buy this FTSE 100 dividend stock today

The gold price has fallen from over $1,350 an ounce early this year to lows of under $1,175 in recent weeks. Meanwhile, hedge funds’ short positions on the yellow metal have reached record levels. I believe this represents a contrarian opportunity to buy bullion or invest in gold mining stocks.

One stock I’d be happy to buy right now is FTSE 100 giant Randgold Resources  (LSE: RRS). I’m also going to look at the investment potential of a lesser-known precious metals miner, Sylvania Platinum  (LSE: SLP), which released its annual results today.

Golden opportunity

As with gold itself, disclosable short positions in Randgold Resources are at an all-time high. The share price has fallen 30% so far this year. The hefty drop has not only put the company on cheap assets and earnings ratings by historical standards, but also turned it into a highly attractive dividend stock at a current share price of around 5,200p.

Randgold’s price-to-book (P/B) ratio of 1.6 is historically cheap, as is its forecast current-year price-to-earnings (P/E) ratio of 22, falling to 18.3 next year on expectations of 20% earnings growth. The P/E and forecast growth also combine to give a cheap price-to-earnings growth (PEG) ratio of 0.9.

Having previously paid a modest dividend, Randgold doubled the payout last year. Further chunky increases are in the pipeline, with City forecasts indicating a yield of 4% this year, rising to 5.1% next year. All in all, I agree with my Foolish colleague Paul Summers that Randgold could be a great addition to a portfolio at the present time.

Progressive small-cap

Sylvania Platinum is a producer of platinum group metals (PGMs) which include, as the name suggests, platinum, plus palladium and rhodium. It operates in South Africa’s renowned PGM-rich Bushveld Igneous Complex. Current revenue comes from the low-cost and low-risk extraction of PGMs from tailings of chromite mines in the region and it’s also looking to develop PGM shallow mining operations.

In contrast to Randgold, Sylvania’s shares have been soaring this year. They’re up 7.7% today, as I’m writing, on the back of this morning’s annual results, taking their gain since the start of the year to 64%. At a current price of 21.75p the market capitalisation is £62m.

Under the radar

Sylvania reported a fifth consecutive year of record production for its financial year ended 30 June. Weakness in the price of platinum was offset by higher rhodium and palladium prices and the company posted a 24% rise in revenue to $62.8m. Costs were higher (partly due to an acquisition in November) but bottom-line growth was still strong, with earnings up 25% to $0.0383 a share. This equates to 2.97p at current exchange rates and puts the stock on a highly attractive P/E of 7.3, suggesting it may still be under the radar of many investors.

Sylvania is well-managed and cash generative. It reported $14m cash on the balance sheet at the year-end, with no debt, and the board declared a maiden dividend of 0.35p, giving a yield of 1.6%. The platinum price has fallen to levels not seen since after the 2008 financial crisis, because supply currently exceeds fundamental demand. There’s little prospect of this improving any time soon but Sylvania’s continuing operational progress in the face of it all persuades me to rate the stock a ‘buy’.

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G A Chester 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.