The search for safe, long-term wealth-compounding ends here...
The search for safe, long-term wealth-compounding ends here... A special kind of gold stock... Why low natural gas prices are killing coal stocks... Another winning gold trade is on the way…
It's boom times for gold royalty businesses right now...
Regular Digest readers are familiar with precious-metal royalty companies. Investing in these unusual businesses is one of our favorite ways to gain exposure to gold and silver.
"Royalty" companies don't mine any gold or silver themselves. Instead, they finance lots of early-stage mining projects. They earn royalty payments on mine production if things work out. It's a safer, more diversified way to invest in the gold-mining business, rather than owning a company focused on one big strike.
We've mentioned big royalty firm Royal Gold as a way to take advantage of this idea. The stock is a holding in several S&A newsletters. Royal Gold gets a "piece of the pie" from productive gold mines around the world.
This week, Royal Gold struck an all-time high. With gold advancing to the $1,700 per ounce level (and sitting 55% higher than 2010 levels), Royal Gold's revenue streams are growing larger and larger. The new share price high is impressive when you consider that the overall gold stock sector is having a weak 2012. The benchmark gold stock index is down 8% this year.
This difference in returns is a good demonstration of how much better the royalty business is than conventional mining. Royalty companies have more in common with simple, well-run banks than they do with conventional mining firms.
This idea is so important, we included it in our "World's Greatest Investment Ideas" interview series, which is a collection of educational interviews our sister site, The Daily Crux, conducted with our most knowledgeable contacts and analysts at S&A. This royalty interview is with John Doody, one of the world's top gold investment experts. You can access it for free here.
Speaking of gold... Jeff Clark just put on another gold trade.
If you're a new reader or you don't follow Jeff's work, you probably don't realize why this is a big, big deal. Let me catch you up…
As we've profiled many times, Jeff's ability to trade the ups and downs of gold stocks is incredible. He's generated dozens of double- and triple-digit winning trades over the years. With many of our readers – and certainly all of us here at S&A – Jeff is the E.F. Hutton of gold-stock trading. When he talks gold stocks, we put down whatever we are doing and listen. We've seen him win over and over and over.
I've even made the comment that a skilled, full-time trader could do nothing but trade his account with Jeff's gold stock buy and sell signals, and generate 25%-50% annual returns on capital. That's how good Jeff is at trading the ups and downs of the sector.
Jeff just went long another gold stock. He notes that this trade has the potential to return more than 100% in a month or less. If you'd like to access Jeff's trading instructions immediately, click here to learn more about the S&A Short Report.
As for iron-ore mining, it's the opposite of boom times. The sector is busting. Bloomberg reports Australia's third-largest iron-ore producer, Fortescue Metals Group, fell 8.5% today… striking its lowest point in more than a year.
The reason for Fortescue's decline is the plummeting market price of iron ore. Regular Digest readers know the collapse in iron-ore prices reflects China's economic slowdown. Iron-ore prices recently hit a three-year low because of cooling demand from the world's workshop.
We often point to Brazilian mining giant Vale as a good gauge on what's happening in China. Vale is the world's largest iron-ore miner. A huge slice of its production is sent to China's massive steelmaking industry. As you can see from the two-year chart below, the stock is careening lower. Shares are down 50% from last summer. We're sure this beaten-up sector will be a cheap, attractive buy someday. But right now, it's still falling.
Speaking of mining… it's also important to note how a big theme we cover in the Digest is causing coal stocks to crater.
We've spilled a lot of ink detailing the incredible boom in U.S. oil and gas production. The new technologies of horizontal drilling and hydraulic fracturing have allowed us to unlock huge amounts of hydrocarbons from shale fields that lie underneath much of the country.
Because of these new technologies, U.S. natural gas production is at an all-time high. U.S. crude oil production is at its highest level in more than two decades. It's expected to hit an all-time high by 2017. Energy imports as a percentage of total usage are plunging.
Porter believes this massive new flow of oil and gas is so important, he has called it "the most important economic event of our lifetimes." Our booming natural gas supply is lowering manufacturing costs (because of lower electricity costs and lower raw material costs). It's becoming a big economic advantage. You can read more of Porter's commentary here and here.
Natural gas and coal are both major fuels for electricity generation. Thus, as our natural gas supply soars and prices stay low, it's brutal for coal prices and coal stocks. You can see the effect in this two-year chart of the big coal exchange-traded fund, the Market Vectors Coal Fund (KOL). It has fallen 56% from its 2011 high.
While iron ore and coal stocks lag, Dan's "World Dominator" stocks continue to rise and dominate their industries. World Dominating beer giant Anheuser-Busch InBev (BUD) just struck an all-time high. Dan's Extreme Value readers are up almost 80% on the stock in a little more than two years.
And Dan believes another World Dominator, Microsoft, is set to reward its shareholders in the form of bigger cash dividends. In his most recent 12% Letter update, Dan notes…
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We should see a significant dividend increase from our software giant in the next few weeks... |
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Microsoft (Nasdaq: MSFT) traditionally raises its dividend in September. Last year, it increased its quarterly dividend 25%, from $0.16 to $0.20. I expect the next dividend increase will be hefty as well... |
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Dividends come from free cash flow. That's the amount of cash left over after the company has reinvested in maintaining and growing its business. Microsoft generated a record $29 billion of free cash flow in the fiscal year that ended June 30, 2012. Just over half of its revenues come from sales in the United States. So let's say half its free cash flow – about $14.5 billion – comes from the U.S. (Cash earned outside the U.S. is subject to an extra tax if the company chooses to bring it back to the U.S. So we'll just look at the company's U.S. free cash flow.) |
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In the last fiscal year, Microsoft paid out a total of $6.4 billion in dividends. The company could double its dividend and still have $1.7 billion left over. I doubt we'll see that big of an increase... But a 25% or 30% increase is well within Microsoft's financial responsibilities. In fact, there's really no excuse for Microsoft not paying out the majority of its U.S.–based free cash flow in dividends. |
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If Microsoft raised its dividend by a mere 30%, the current yield would increase from 2.6% to 3.4%. That's well above the S&P 500's 2% yield. |
As we've said many times before, World Dominator stocks are the easiest stocks in the world to own. When you buy World Dominators for good prices, you can forget about everything that stresses out the majority of investors. You simply sit back and watch the companies steadily increase cash flows and dividends. If you're looking for a low-stress, high-return method of safely compounding your wealth, the search begins and ends with World Dominator stocks.
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