It’s been a great year to be involved with gold. For example, the SPDR Gold Shares (NYSEARCA:GLD), is higher by 24.5%. However, it’s an even better time to embrace gold stocks. The VanEck Vectors Gold Miners ETF (NYSEARCA:GDX) proves as much with year-to-date gain of almost 32%.
Those data points underscore the double-edged sword that is investing in gold stocks. When the yellow metal is performing well, as it is this year, miners are great places to be, often overshooting bullion’s gains. Conversely, when gold is flat or declines, gold stocks can slump in dramatic fashion.
Obviously, these are good days for gold stocks and there are sound fundamentals shoring up that case. For example, miners have strong balance sheets, are rewarding investors with buybacks and dividends and much, if not all, of the group will be cash flow positive at some point next year.
With those fine traits to consider, here’s a trio of gold stocks that have the potential continue minting gains for investors.
AngloGold Ashanti (AU)
Sharing is caring and South African miner AngloGold Ashanti is a believer in that sentiment and that’s a big part of the thesis here. AU stock started November on a strong note, posting its best intraday performance in three months after the company said its free cash flow rose to $339 million during the September quarter.
Twenty percent of that capital is being deployed into a doubling of the dividend while the miner is also moving its payout schedule to twice annually from once a year. The payout increase is obviously notable, but investors should latch onto here is that it’s being fund with free cash, meaning AU stock won’t be burdened by the newly higher dividend.
Speaking of cash, AngloGold is looking to repatriate a combined $489 million currently held in the Democratic Republic of Congo and Tanzania.
For those that need more to like with this gold stock, AngloGold is undervalued relative to some of its global peers and its debt burden resides at its lowest levels in a decade. In other words, AU stock offers the alluring combination of dividend growth and declining liabilities.
Newmont (NEM)
Speaking of gold stocks and dividend growth, Colorado-based Newmont twice boosted its payout this year. Under any circumstances, two payout hikes in a year is impressive, but it’s even more impressive when considering how many S&P 500 slashed or suspended payouts this year.
As is the case with rival AngloGold, Newmont is a pristine balance sheet story. Last year, the company generated $1.4 billion in free cash flow, all of which was returned to investors via buybacks and dividends. In the third quarter, the miner generated $1.6 billion in cash from continuing operations and $1.3 billion in free cash flow.
Translation: In the midst of the Covid-19 pandemic, which is serving as an excuse for so many companies in myriad industries, Newmont just delivered its best ever set of quarterly numbers.
NEM stock yields 2.47%, which implies room for growth and is well above what investors grab on the S&P 500 or 10-year Treasuries. Its two dividend hikes this year were 79% and 60%, respectively, and it has $4.8 billion in consolidated cash.
At $1.60 annually, Newmont has the highest dividend among gold stocks and by the end of this year, the miner will have returned $2.5 billion to investors via dividends and share repurchases.
Barrick Gold (GOLD)
Like its aforementioned peers, Barrick Gold is a strong balance sheet story. So strong in fact that its credit rating was recently upgraded to Baa1 from Baa2 by Moody’s Investors Service.
“Barrick’s liquidity is excellent, which provides significant flexibility to maneuver through gold price volatility,” said Moody’s. “Barrick has $8.7 billion in liquidity sources over the next twelve months with no meaningful uses during this period. Sources consist of cash of $3.7 billion at June 2020, an undrawn $3 billion revolver (expires in January 2025) and expected positive free cash flow generation of about $2 billion at a $1,700/oz gold price sensitivity for the remainder of 2020 and $1,400/oz for 2021.”
Barrick is adept at managing costs, a crucial consideration for investors mulling gold stocks. In the second quarter, it cost the company just $716 to produce an ounce of gold. Mining costs vary from quarter to quarter, but even if Barrick’s inputs rise to the $800 per ounce area, it’d still be highly profitable even if gold prices dramatically decline.
The Canadian miner could produce as much as 5 million ounces of bullion this year, a number that could increase once Covid-19 is put to rest.
On the date of publication, Todd Shriber did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Todd Shriber has been an InvestorPlace contributor since 2014.