Is it Time for Gold Stocks to Shine Right Now?

Gold bullion on a chart

Gold and interest rates have an inverse relationship, which means when interest rates fall, the prices of the yellow metal rise. So, if you expect the federal banks globally to reduce interest rates in the next 12 months, it makes sense to gain exposure to gold.

Historically, the limited supply of gold and stable demand globally has allowed the metal to deliver inflation-beating returns over time. Moreover, gold has gained pace in recent months, despite interest rate hikes due to geopolitical tensions and an uncertain macroeconomy.

Central banks are piling into gold and diversifying their reserves to reduce dependency on the U.S. dollar. Investors in China are also increasing exposure to gold amid the country’s real estate crisis, a depreciating yuan, and lower interest rates.

Gold prices surged to a five-month high last week and have increased almost 10% in the past month. Here is one top TSX gold mining stock you can buy today if gold continues to move higher.

Is Newmont stock a good buy right now?

Among the leading producers of gold, copper, silver, lead, and zinc, Newmont (TSX:NGT) is valued at $22 billion by market cap. Armed with a diversified portfolio of mining assets in the Americas, Africa, and Australia, Newmont is the only gold mining company part of the S&P 500 index.

Newmont has 10 tier-one operations with gold and copper exposure. Its low-cost production profile in Canada and Australia makes Newmont one of the compelling mining stocks for TSX investors.

Newmont expects to generate US$2 billion in cash from portfolio optimization in the next 12 months, which can be used to reduce balance sheet debt, reinvest in capital projects, and raise dividends. It has also identified US$500 million in cost synergies, which should drive profit margins higher.

Back in April 2019, Newmont acquired Goldcorp for US$10 billion. In the last four years, Newmont has enjoyed total synergies worth US$1.1 billion, surpassing its initial forecast of US$365 million. Its proceeds from portfolio optimization have totaled US$2.2 billion, which includes $1.5 billion via the sale of non-core assets.

In May 2023, Newmont disclosed its intention to acquire Newcrest for US$17 billion. Newmont expects the acquisition to be highly accretive to its cash flows. It targets US$2 billion in additional cash flows in the first two years once the acquisition is closed.

Does Newmont stock pay a dividend?

Newmont pays shareholders an annual dividend of $2.21 per share, indicating a forward yield of 4.1%. These payouts have more than doubled in the past decade. Newmont pays shareholders a base dividend of US$1 per share at a gold reserve price of US$1,400 per ounce. The variable component depends on the cash flow the company generates each quarter. This dividend model has allowed Newmont to maintain a yield of at least 3% in the last 11 quarters.

With US$6.2 billion in liquidity and US$3.2 billion in cash, Newmont is well capitalized. It ended the third quarter with a net debt-to-adjusted earnings before interest, taxes, depreciation, and amortization multiple of 0.7 times, which is not too high.

Priced at 14.4 times forward earnings, Newmont stock is quite cheap, given its adjusted earnings are forecast to grow from US$2.5 per share in 2022 to US$3.52 per share in 2024. Analysts remain bullish and expect Newmont shares to almost double in the next 12 months.

The post Is it Time for Gold Stocks to Shine Right Now? appeared first on The Motley Fool Canada.

Should You Invest $1,000 In Newmont Mining Corporation?

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See the 5 Stocks
* Returns as of 10/10/23

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Fool contributor Aditya Raghunath has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.