Another week, another chance to celebrate the investment appeal of London’s gaggle of gold producers.
On Tuesday, it was the turn of Petropavlovsk (LSE: POG) to grab the headlines, when the firm announced in a blockbuster update that revenues and underlying EBITDA boomed 13% and 37% in the six months to June.
The gold standard
I’ve previously tipped the gold diggers as great stocks to load up on thanks to the sunny outlook for bullion prices in the near term and beyond. But Petropavlovsk’s exceptional first-half results were delivered by a combination of surging volumes and the hard work it’s undertaken to strip out costs.
The explosion in precious metals prices over the summer will become apparent in financials during the second half. Given the likelihood that low global rates and intense geopolitical and macroeconomic uncertainty will persist, precious metal prices will probably continue to provide support further out.
Petropavlovsk is boosting production at its Pressure Oxidation Hub and plans to double its refractory ore processing capacity by upgrading its Pioneer asset. These efforts mean that I’m expecting the Russian firm to deliver some truly titanic profits increases as we move through 2019 and beyond.
Dividend hero
There’s no question that buying shares in the gold colossus is a much better decision than locking your cash up in a poorly-paying cash product like a Cash ISA. The best of these particular accounts continues to pay around a meagre 1.4%.
Surely you’d be better off using that money to latch onto Petropavlovsk’s glowing stock price? It has gained around 75% in value over the past year alone on those improving metal values and ambitious production plans.
You’d also be better off buying publishing giant Reach (LSE: RCH) in my opinion. This small cap has gained a more modest 28% in value during the past 12 months, but an area in which it beats Petropavlovsk – and really smashes the returns on offer from a Cash ISA – is in terms of dividends.
7% yields
Petropavlovsk doesn’t pay dividends at the moment, whereas Reach continues to maintain an ultra-generous dividend policy. Yields for 2019 and 2020 clock in at a whopping 7% and 7.4%.
But the publishing giant isn’t just a top buy for big yields. Its ability to generate cash is quite phenomenal. Cash from operations leapt 16% in the first half, which is giving it the financial firepower to keep slashing debt, pursue its investment objectives and continue raising annual dividends.
Reach’s balance sheet has improved so rapidly that it’s mulling launching a share buyback programme in the not-too-distant future, too.
I won’t pretend that the publishing market is a bed of roses right now. Like-for-like sales at Reach fell a further 6.3% in the first half due to falling circulation and lower ad revenues. But the acquisition of the Express and Star titles a couple of years back, and the subsequent bolstering of Reach’s digital publishing footprint, should make it a formidable media giant further down the line. And this is why I’d happily buy the big-yielding dividend hero today.
