Is Franco-Nevada stock worth buying for its 1.06% dividend yield?

Since the Bank of Canada began its rate cutting cycle in June of this year, Canadian stocks have risen significantly. As of this writing, the TSX is up 16.36% year to date. However, the broad market’s performance pales in comparison to the top 11 commodity sectors.

The materials sector, where metals and mining stocks owned, currently has the best market yield of 30.49%. You can find the best gold stocks in the sector, including Franco-Nevada (TLC: FNV). This dividend gem is a winning investment in 2024. At $185.27 per share, FNV pays a dividend of 1.06%. Although yields are modest, quarterly bonds are safe and secure thanks to their low payout ratio of 37.85%.

Current investors are happy with the 27.41% year-to-date return and are hoping for higher returns due to higher prices. Market analysts recommend buying shares. Their 12-month average and maximum price targets are $206.48 (+10.3%) and $264.96 (+30.1%).

Low risk business with free cash flow

Franco-Nevada is a relatively new company (founded in 1986) but has a diversified portfolio of cash generating assets. The $35.65 billion gold-focused company operates in 14 countries (85% in the Americas) and focuses on a variety of commodities (75% precious metals).

According to management, the main goals are to minimize risks, pay dividends and maintain a strong balance sheet. The business model is unique. Franco-Nevada does not operate mines, develop projects or conduct exploration activities. It owns and develops a diversified portfolio of royalties and streams. Thanks to this structure, it is essentially a free cash flow (FCF) business.

The business model generates strong cash flows due to high profitability and low overhead costs. The benefit for investors is limited exposure to cost inflation and other operational risks. Franco Nevada also aims to be a gold stock for general investors. Do you have low risk investment to protect against market volatility.

Financial indicators

Gold prices were strong in the second quarter (2Q) of 2024, although Franco Nevada reported lower revenue and earnings. For the three months ended June 30, 2024, revenue and net income decreased 26.8% and 132.1% year over year to $260 million and $79.5 million. Net cash provided by operating activities fell 26. 5% to $371.7 million compared to last year.

Franco-Nevada CEO Paul Brink expects more significant contributions in the second half of the year from other newly commissioned production assets. The latest additions, SolGold’s Cascabel copper-gold project (gold stream) in Ecuador and Newmont’s Yanacocha venture in Peru (royalties), have potential long-term assets.

It’s important to note that Franco-Nevada has no debt and therefore uses free cash flow to grow its portfolio and pay its dividend. At the end of the quarter, cash on hand reached $1.44 billion, up 1.4% from the same period last year.

Dividend Aristocrat

Franco-Nevada believes it has what it takes to attract investors. In addition to the lower risk option and strong balance sheet, the dividend has been growing gradually. The major mining company has increased its dividend for 17 years in a row. Its Dividend Aristocrat status makes it a good buy for investors looking to add stability to their passive income portfolios.