Published on August 27th, 2019 by Nathan Parsh
Companies that mine for precious metals such as gold and silver operate in highly cyclical industries. Profits for mining companies are often reliant on high commodity prices. During times of rising precious metals prices, this results in a massive windfall.
But the opposite is also true–lower precious metals prices can cause mining companies to post losses. As a result, income investors looking for stable cash flow and reliable dividends need to tread carefully.
You can download our full list of silver mining stocks below:
In addition to the Excel spreadsheet above, this article covers our top 6 silver stocks today, as ranked using expected total returns.
This article examines the investment prospects of 6 of the top silver stocks in details. The companies analyzed primarily focus on the precious metal silver, but also on other metals.
We rank these 6 companies by our expected total annual return estimate over the next five years, which is a combination of future earnings-per-share growth, current dividend yield , and the impact of multiple expansion or contraction.
Table of Contents
- Wheaton Precious Metals (WPM)
- Pan American Silver Corporation (PAAS)
- First Majestic Silver Corporation (AG)
- Hecla Mining Company (HL)
- Fresnillo Plc (FNLPF)
- Glencore plc (GLCNF)
Top Silver Stock #6: Wheaton Precious Metals (WPM)
- Estimated total annual return through 2024: -6.0%
Formerly known as Wheaton Silver, Wheaton Precious Metals was started in 1994. The company has a market capitalization of $12.8 billion, with annual revenues of $850 million.
Wheaton is the largest metal streaming company in the world. Streaming means that the company purchases the right to buy silver and gold at a low fixed cost instead of outright mine ownership. Wheaton has such agreements with 20 mines around the world.
Source: July 2019 Corporate Presentation , slide 5.
Wheaton’s earnings-per-share performance has been quite volatile over the last decade. Due to its business model, Wheaton doesn’t control how much gold or silver is mined from a specific location nor does the company have control over the market prices for the precious metals. The company compounded earnings-per-share by just 2.4% from 2009 to 2018.
Wheaton saw several mines shift production or cease in 2018. The remaining minds are expected to see an increase in production moving forward. Volumes for precious metals are expected to improve in the coming years. As such, we expect earnings-per-share to grow at a rate of 7% annually through 2024.
Wheaton has paid a dividend since 2011, but does not have a consistent growth history. The company cut its dividend in both 2014 and 2015. Wheaton has raised its dividend the past three years, but we do not expect much, if any, dividend growth going forward until mine production improves. Shares of the company yield 1.3% currently.
Shares of Wheaton closed the most recent trading session at $28.73. Using our expected earnings-per-share of $0.53 for 2019, the stock has a P/E ratio of 54.2, which is well above the stock’s 10-year average multiple of 30x earnings. We have a 2024 target P/E of 25. If shares were to revert to this P/E by this time, then valuation will be a 14.3% headwind to annual returns.
We forecast that Wheaton will return a loss of 6.0% annually over the next five years. This estimate is due to earnings growth (7%), dividend yield (1.3%) being more than offset by multiple reversion (14.3%).
Top Silver Stock #5: Pan American Silver Corporation (PAAS)
- Estimated total annual return through 2024: -3.9%
Pan American Silver Corporation explores, acquires, develops and refines silver produced from its mines. The company has a market cap of $3.7 billion, with annual revenues of $785 million.
The company has operations in both North and South America.
Source: Investor Presentation, slide 4.
Pan American operates silver mines in the U.S., Canada, Peru, Mexico and Argentina. The company has used acquisitions to help fuel future growth, most recently acquiring Canadian precious metal mining company Tahoe Resources. This should help Pan American increase silver output 7% to 11% this year.
Pan American earned $0.39 per share in 2018, which is down nearly 50% from 2009’s total. Earnings-per-share last year were down 32% from 2016’s level. Still, this is better than the company’s performance from 2013 through 2015, when Pan American posted a loss each year.
While we are cognizant of the company’s past performance, we feel that the increase in silver output due to the Tahoe acquisition should help the company achieve 8% earnings growth through 2024.
Pan American has paid a dividend every year since 2008, though the company cut its dividend in both 2015 and 2016. Over the last two years, however, Pan American’s dividend has nearly tripled. Unlike many silver companies on this list, we think that the dividend could grow meaningfully over the next five years, especially if our earnings growth rate comes to fruition. The stock offers a 0.8% yield today.
Pan American closed the most recent trading session at $17.45. Analysts expect that the company will earn $0.34 per share, giving the stock a P/E ratio of 51.3. Not including the years the company had a loss for earnings-per-share, the average P/E since 2009 is 26. If shares reverted to this average multiple by 2024, then valuation would reduce annual returns by 12.7% over this time period.
Altogether, we forecast that Pan American will offer an annual loss of 3.9% per year over the next half decade. We arrive at this estimate due to a combination of earnings growth (8%), dividend yield (0.8%) and multiple reversion (12.7%).
Top Silver Stock #4: First Majestic Silver Corporation (AG)
- Estimated total annual return through 2024: 3%
First Majestic Silver Corporation focuses its exploration and production of minerals in Mexico.
Source: Corporate Presentation, slide 11.
The company has six silver producing mines in Mexico along with several sites that are currently exploring for possible deposits. The company has been in existence since 1979 and trades today with a market capitalization in excess of $2.2 billion while producing annual sales of $300 million. First Majestic’s silver ounces produced have tripled over the last decade. The company’s acquisition of Primero Mining Corp helped lead to a doubling of gold ounces produced from 2017 to 2018.
Earnings-per-share grew fairly steadily from 2009 through 2012, but First Majestic has produced a loss in five out of the last six years. The company lost $1.11 per share last year, its largest loss over the last 10 years.
Analysts expect that First Majestic will break even in 2019, which is a vast improvement from the prior year. If the company is able to deliver this type of improvement in profitability in one year, we feel that First Majestic could be turning a corner. We think that a 3% earnings growth rate moving forward is appropriate.
First Majestic does not currently pay a dividend to shareholders. This is a very prudent decision because the company has not been profitable very often in the last decade. We don’t anticipate the company initiating a dividend in the near future.
First Majestic isn’t expected to be profitable this year, so the stock doesn’t have a P/E ratio. If the company were able to produce our predicted 3% earnings growth then the stock could potentially see valuation add to annual returns.
We expect First Majestic to offer an annual return of 3% through 2024. This estimate consists of just our earnings-per-share growth forecast. Unlike the first two names on this list, First Majestic is at least expected to produce some annual returns over the next five years.
Top Silver Stock #3: Hecla Mining Company (HL)
- Estimated total annual return through 2024: 5.6%
Hecla Mining Company has been in business since 1891. The company, along with its subsidiaries, develops, produces, markets and explores for both precious and base metals around the world. The company sells unrefined gold and silver to traders in the precious metal markets. Hecla also provides lead, zinc and bulk concentrates to smelters. Hecla has a current market capitalization of $819 million. The company generated ~$560 million in revenues last year.
Hecla has interests in Alaska, Colorado, Idaho, Montana northwestern Quebec and Mexico.
Source: Corporate Presentation, slide 7.
After seeing profitability at the beginning of the current decade, Hecla has posted a loss for earnings-per-share in five of the last seven years. According to the average analysts’ estimate, the company is expected to lose $0.15 per share in 2019. This loss is due to the costs related for exploration and mining expenses.
Hecla’s business performance is at the mercy of the markets for its precious and base metals. The company does have some advantages. First, Hecla is the largest silver producer in the U.S. and the third largest producer of lead and zinc. The company also focuses on mines with a long reserve life. Its core properties have an estimated reserve life of between 11 and 15 years.
Lastly, Hecla assumes the lowest price per ounce for silver and the third lowest price per ounce for gold in the entire mining industry. This means that the company offers very conservative estimates for the price of these precious metals. It is likely that Hecla will realize much higher prices when it markets silver and gold to customers.
Due to this, we anticipate that earnings-per-share will grow at a rate of 5% annually over the next five years.
Hecla pays a quarterly dividend of $0.002, which equates to a dividend yield of 0.6% using the current share price. The company has paid a dividend since 2011, but cut it in 2012 to the current payment. We do not anticipate further dividend growth unless the company’s business improves.
With an earnings-per-share loss expected for 2019, it is not possible to calculate Hecla’s P/E ratio. If the company were to match our projected earnings growth rate, then valuation would likely be a meaningful addition to annual returns.
Using projected earnings growth (5%) and dividend yield (0.6%), we forecast that Hecla can offer a total annual return of 5.6% through 2024.
Top Silver Stock #2: Fresnillo Plc (FNLPF)
- Estimated total annual return through 2024: 13%
Fresnillo is the world’s leading producer of silver and the largest producer of gold in Mexico. The company’s shares are listed on the London stock exchange. Besides silver and gold, Fresnillo explores for lead and zinc concentrates. The company also leases mining equipment, supplies semi-pure alloys of gold and silver and provides administrative services. Fresnillo has a market capitalization of $6.3 billion and produced $2.2 billion revenue in 2018.
Fresnillo is a very diversified company.
Source: 1st Half results Presentation, slide 19.
No mine contributes more than 30% to the company’s revenue, with most mines accounting for less than 15% of total revenue.
Like many companies on this list, Fresnillo has experienced wide variance in earnings results. The company has produced a loss several times over the last decade. Earnings-per-share have increased just 1.7% over the last decade. We estimate that earnings-per-share could grow at 3% annually over the next five years.
Fresnillo’s policy is to pay out 33% to 50% of profit after tax in the form of dividends. The company pays out one-third of the dividend in August while the remaining two-thirds of the dividend is paid in April. Because profit changes from year-to-year and currency exchange impacts what amount U.S. investors are paid, the dividend has varied over the years. Investors should note that the company has paid a dividend for at least 10 consecutive years, the longest streak of any company on this list. The stock yields 2.5%, the second highest yield on this list.
The company has not given specific earnings-per-share guidance for 2019. Applying our 3% expected growth rate to last year’s earnings of $0.48, we forecast that Fresnillo will earn $0.49 per share this year.
Shares of the company ended the week at $8.55. Using our expected earnings-per-share, the stock trades with a P/E ratio of 17.4. We believe a 2024 target P/E ratio of 25 is reasonable given the target valuations of other companies in this sector. If Fresnillo’s stock were to reach this target, valuation would add 7.5% to annual returns through 2024.
We believe that Fresnillo will return 13% per year through 2024. Earnings growth (3%), dividend yield (2.5%) and valuation expansion (7.5%) are all expected to contribute to total returns.
Due to projected total returns, Fresnillo earns a buy recommendation from Sure Dividend. We caution that the precious metal sector is difficult to invest in due to the ever-changing conditions of the markets. We encourage only investors willing to take additional risk consider purchasing stocks in this area. If an investor understands the risks associated with silver and other precious metals, then we feel Fresnillo is a solid choice.
Top Silver Stock #1: Glencore plc (GLCNF)
- Estimated total annual return through 2024: 22.7%
Glencore was founded in 1974 and is one of the leading companies in the mining sector. Glencore plc was the result of merging Glencore with Xstrata on 5/2/2013. The company smelts, refines, mines, processes and stores silver, copper, zinc, aluminum, nickel, cobalt, iron ore and other metals. Glencore, which is the largest company in Switzerland, also has an energy and agricultural products segment. This makes the company the most diversified on this list.
With a market cap of $37.5 billion and annual sales of $221 billion, Glencore is also the world’s biggest commodities trading company. The company’s stock is listed on the London Stock Exchange.
While silver is the company’s largest metal produced, Glencore is also a leader in several other areas.
As you can see, Glencore is a global leader in the production of copper, cobalt, zinc, nickel and seaborne energy coal.
Earnings-per-share have declined 6.2% annually since 2014, the first full year following the merger. We feel that the company should be able to compound earnings at a rate of at least 3% over the next five years as Glencore is the largest name in its sector. We also find the diversified business model away from precious metals to be attractive as well.
Glencore has paid a dividend twice every year since 2011, except 2016 when no payment was made. The company’s payment has rarely been consistent. The company is expected to pay $0.20 in dividends this year, which equates to a dividend yield of 7.2% currently.
The company has not offered guidance for 2019. Applying our 3% projected growth rate to earnings-per-share of $0.24 in 2018, we estimate that Glencore can produce $0.25 of earnings-per-share in 2019.
Glencore’s stock is currently trading at $2.80. Using our expected earnings-per-share for the year, the stock has a P/E ratio of 11.1. Due to the company’s sizeable declines in earnings-per-share since the merger, we feel a target P/E ratio of 20 is fair. If shares were to reach this multiple by 2024, then valuation would be a 12.5% tailwind to total annual returns.
Glencore is expected to return 22.7% per year over the next five years. This estimate is due to earnings growth (3%), dividend yield (7.2%) and multiple expansion (12.5%).
Glencore offers our largest expected total return over the next five years on this list. Investors who with a stronger risk appetite could do very well owning shares of the company at the current price. Due to expected returns, Glencore receives a buy recommendation from Sure Dividend.
Investing in the precious metal space is best left to those with higher risk tolerances. The companies on this list have each struggled during various portions of the past decade. Some companies have rarely recorded a profit for the year.
Moreover, many silver stocks do not pay dividends, and even those that do cannot be counted on to maintain their dividends during a recession, or during periods of declining silver prices.
That said, if investors want access to the silver space, we believe that Fresnillo and Glencore are the best options. These could be the strongest silver mining stocks over the next five years. We would avoid the others for now as they don’t offer enough potential return over the next five years to warrant purchasing at this time.