Barrick Gold (GOLD) reported fourth quarter earnings of 17 cents a share on Wednesday, February 12. That beat the 14 cents a share estimate from Wall Street analysts for the quarter. A year ago the company earned 6 cents a share in the fourth quarter of 2018.
But that wasn’t the BIG surprise from the company. Barrick Gold announced that it would raise its quarterly dividend by 40% to 7 cents a quarter. That follows on a 25% increase in the dividend in the third quarter of 2019. That raises the forward yield to 1.43% as of 3:15 p.m. New York time when the stock traded at $19.61 a share.
Now I’m sure that a yield of 1.43% doesn’t make a dividend investor’s mouth water. But, hey, this is a gold mining stock and gold is notorious for not paying any dividend or yield at all. With U.S. stocks near another all-time high and with the global economy looking a little uncertain in the wake of the coronavirus, gold is an attractive way to hedge some market risk. Especially if it is paying a dividend essentially equal to that on the 2-year U.S. Treasury at 1.43% on February 14. (The 10-year Treasury pays 1.59%.)
I think gold and Barrick Gold have longer to run. And with the yield at 1.43% you are getting paid while you hedge. I’m adding Barrick Gold, already a member of my Jubak Picks and 50 Stocks portfolios to my Dividend Portfolio. The shares are up 26.03% since I added them to the Jubak Picks Portfolio on June 21, 2019 and up 46.03% in the 50 Stocks Portfolio since I added them to that list on May 15, 2018. (Barrick Gold forecasts a 30% drop in global gold supply by 2029, which should vie more than enough to keep gold prices climbing.)
The earnings growth and beat is a result of higher gold production and higher gold prices. Production rose 14% to 1.44 million ounces from the fourth quarter of 2018. (For all of 2019 gold production was 5.465 milli9n ounces, at the top end of guidance. Copper production of 432 million pounds was above the guidance.) The average realized price of gold climbed to $1,483 from $1,223 per ounce in the fourth quarter of 2018.
In the year since Barrick Gold completed its merger with Randgold, the company has been selling off non-core assets. That has reduced debt net of cash to $2.2 billion at the end of the quarter, down 47% from the end of 2018. And the company could reach $0 net debt in 2020.
The faster than expected sale of assets has reduced debt–a good thing–but it has also set up the company’s next challenge. Selling these assets in order to focus on the best core assets in the company’s portfolio has reduced the projected five-year annual production to 4.8 million to 5.2 million ounces of gold. As recently as November, the company had projected a range of 5.1 million to 5.6 million ounces.
Where will Barrick Gold find new assets?
One possibility is to increase the company’s portfolio of copper assets, CEO Dennis Mark Bristol said in post-earnings comments. “If you’re going to be a major player, you need to have copper in your portfolio.” In December Bristow floated the possibility that Barrick would one day pursue a merger with Freeport McMoRan (FCX), the largest publicly traded copper producer, or buy some of its assets such as the huge Grasberg mine in Indonesia. On Wednesday, Bristow said the idea is just at a conceptual stage but has triggered “an interesting debate.” There are no plans “to run out there and do something” right now, he stressed. “I don’t do hostile things lightly. This is a complicated situation.”
Barrick Gold shares closed up 3.99% today, February 14. Today I’m also raising the target price on Barrick Gold in my Jubak Picks Portfolio to $24 from the current $21 a share