3 Strong Reasons to Snap Up Kinross Gold (TSX:K) Stock Right Now

The rally in Kinross Gold stock is likely to sustain. Here’s why.

| More on:

As the gold prices surged in 2020 amid strong demand for the yellow metal, shares of gold mining companies crafted new highs. For instance, shares of Kinross Gold (TSX:K)(NYSE:KGC) have doubled so far this year and have outperformed peers by a wide margin.

Despite the rally, I believe there’s further upside in Kinross Gold stock. Here are three strong reasons why I believe investors should snap up Kinross Gold stock right now.

Growing low-cost production

Kinross Gold announced robust three-year production guidance, wherein the company expects its production to increase by 20% to 2.9 million gold equivalent ounces over the next three years. While the company projects a steady increase in production, it expects an overall downward trend in the production cost of sales and capex, which is likely to boost its free cash flow significantly.

Over the next three years, the gold mining company plans to bring lower-cost projects, which are likely to lead to a downtrend in the production cost of sales per ounce sold. The company’s CEO, J. Paul Rollinson, said that “our growing production profile, combined with our declining cost structure, is expected to drive strong and growing free cash flow.”

Investors should note that the company’s growing production, higher demand for gold, and declining cost trend is likely to significantly drive its margins and cash and its stock. In the most recent quarter, its margins jumped 53% year over year, outpacing the 31% increase in the gold price, thanks to the leverage from the increased production from the low-cost mines.

Reinstatement of dividends

Besides strong production guidance, Kinross Gold also announced the reinstatement of its dividends after a hiatus of seven years. The company last paid dividends in March 2013.

Kinross Gold declared a quarterly dividend of US$0.03 per share, which translates into a decent dividend yield of about 1.3%. The reinstatement of its dividends indicates the strength in its underlying business, improving prospects, and ability to generate strong cash flows. The announced dividend will be paid on October 22 to the shareholders of record as on October 8.

Attractive valuation

Kinross Gold looks attractive on the valuation front, despite the strong run-up in its stock. Kinross Gold trades at a forward enterprise value-to-EBITDA multiple of 5.4, which is well below (about 34% discount) the peer group average of 8.3.

In comparison, Agnico-Eagle Mines and Barrick Gold are trading at a forward enterprise value-to-EBITDA multiple of 8.3 and 10.4, respectively.

The fear of an economic slowdown and rising coronavirus infections suggests that the demand for the yellow metal could stay high in the foreseeable future, which is likely to push prices higher. Meanwhile, Kinross Gold’s increased production, declining cost trend, solid balance sheet, and reinstatement of its dividends warrant further expansion in its valuation multiple.

Bottom line  

Amid the lower interest rate environment, investors chasing higher returns from safe-haven assets should snap up Kinross Gold stock right now. Its improving business prospects, favourable industry trend, and low valuation provide a strong base for outsized growth in the coming years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Sneha Nahata has no position in any of the stocks mentioned.

More on Dividend Stocks

hand stacks coins
Dividend Stocks

3 Ultra-High-Yield Dividend Stocks You Can Buy and Hold for a Decade

These three high-yield dividend stocks still have some work to do, but each are in steady areas that are only…

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

TFSA: 2 Canadian Stocks to Buy and Hold Forever

Here are 2 TFSA-worthy Canadian stocks. Which one is a good buy for your TFSA today?

Read more »

calculate and analyze stock
Dividend Stocks

This 5.5% Dividend Stock Pays Cash Every Single Month!

This REIT may offer monthly dividends, but don't forget about the potential returns in the growth industry its involved with.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

How to Use Your TFSA to Earn up to $6,000 Per Year in Tax-Free Passive Income

A high return doesn't mean you have to make a high investment -- or a risky one -- especially with…

Read more »

path road success business
Dividend Stocks

2 High-Yield Dividend Stocks to Buy Hand Over Fist and 1 to Avoid

High yields are great and all, but only if returns come with them. And while two of these might, another…

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 7% Dividend Stock Pays Cash Every Month

A high dividend yield isn't everything. But when it pays out each month and offers this stability, it's worth considering!

Read more »

young people stare at smartphones
Dividend Stocks

GST/HST “Vacation”: Everything Canadians Need to Know

The GST/HST "vacation" is a little treat for the holidays, along with a $250 payment. What should you do with…

Read more »

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »