While everyone loves a bargain, there are plenty of FTSE 100 dividend shares out there that I’d happily buy despite their premium share prices. Mining giant Randgold Resources (LSE: RRS) is one of them, though beware: it is a share that at the current time may not be for the faint of heart.
Gold prices continue to muddle just below the $1,200 per ounce barrier and with this psychologically-critical level now having been breached, it’s possible that bullion could extend its recent downtrend. Fresh dollar strength, allied with the prospect of growing fears over US President Trump’s determination to invoke trade wars with the rest of the planet, could certainly provide the ammo for new drops.
Falling demand for the safe-haven metal is not the only factor that has pressured Randgold’s stock value more recently, with industrial action in the Côte d’Ivoire also muddying investor appetite. The latest episode at its Tongan mine was resolved last week but the danger of fresh action is never far away, such is the nature of mining in Africa.
I remain convinced that Randgold remains a splendid pick for long-term investors, however, and that recent share price falls (which now leave it dealing at 17-month lows) represents a great buying opportunity.
A compelling long-term pick
As I remarked last time out, the Footsie-quoted digger has embarked on exploration work across the African continent to keep production and thus profits on an upward slant in the years ahead. What’s more, Randgold’s 10-year business plan has been designed to guarantee that the business remains profitable, even if gold prices fall as low as $1,000 per ounce, providing investors with plenty of reassurance.
Not that I reckon values are in danger of falling near this level. As I said, metal values may fall further in the near term, but I believe in the eternal appeal of gold as an investment vehicle and foresee only limited downside in the current environment. Besides, gold’s role as an industrial metal across an increasing number of applications should also support bullion values.
It may be an understatement to say that Randgold’s share price has taken a bit of a whack, the business having ducked 40% over the past 12 months. Some investors may baulk at the idea of splashing the cash on a stock still dealing on a forward P/E ratio of 20.7 times, though, a reading that sits outside the widely-accepted value territory of 15 times and below.
But there are two schools of thought. Firstly, although subdued gold prices are expected to result in an earnings rise of just 1% in 2018, City brokers are expecting better production levels next year, allied with a likely uptick in metal prices, to underpin a 21% profits rise.
Secondly, Randgold’s vast dividend yields also take much of the sting out of its elevated earnings multiple. For this year a projected 278 US cents per share dividend yields 4.4%. And the dial sprints to 5.7% for next year thanks to the predicted 359 cent payout.
I’ve long been a fan of the gold Goliath and, while conditions have become more challenging of late, I still reckon it’s a share that could deliver blowout shareholder returns.
Do you want to retire early and give up the rat race to enjoy the rest of your life? Of course you do, and to help you accomplish this goal, the Motley Fool has put together this free report titled "The Foolish Guide To Financial Independence", which is packed full of wealth-creating tips as well as ideas for your money.
The report is entirely free and available for download today, so if you're interested in exiting the rat race and achieving financial independence, click here to download the report. What have you got to lose?
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.