There are never any sure things when investing in silver, gold, stocks, or any market for that matter. When I go through my portfolio I try to figure out which stocks will outperform the most, and which ones I consider to be the safest bet going forward.
While I love gold royalty play Sandstorm Gold and other gold and silver mining stocks like Brigus Gold, Endeavor Silver and First Majestic, and I often stop and marvel at one stock in particular - Silver Wheaton. It is, quite simply, one of the best stocks you want to own for the next 5 years!
If you are new to the silver space please read up before reading any further. Silver ETFs are also worth reading up on for your 401K or IRA account. In a nutshell, I believe silver is going to $50 in 2012 and even further in the coming years.
"Established in 2004, Silver Wheaton has quickly positioned itself as the largest metals streaming company in the world. The company currently has fourteen silver purchase agreements and two precious metals agreements where, in exchange for an upfront payment, it has the right to purchase all or a portion of the silver" (www.silverwheaton.com).
The company purchases their agreements with miners at a fixed price, often at $5 an ounce. What this means is as silver increases in price, so does Silver Wheatons margins. It's pure cash flow. Event better, the company recently announced that they are tying their future dividends to their cash flows! We are talking about the potential of MASSIVE dividend increases in the future.
November 9 - "Silver Wheaton is pleased to announce that its Board of Directors has adopted a new dividend policy that links quarterly dividend payments to operating cash flows in the prior quarter. Commencing immediately, the quarterly dividend per common share will be equal to 20% of the cash generated by operating activities in the previous quarter divided by the Company's outstanding common shares at the time the dividend is approved, all rounded to the nearest cent."
Let's be clear about this - with silver at $30, this company is VERY profitable and cash flow positive. Can you imagine what the earnings will be with a silver price of say $50? or $100?
The company has a pretty sweet growth profile as well. They forecast 2011 attributable production of 25 to 26 million silver equivalent ounces, including 15,000 ounces of gold. However, by 2015, annual attributable production is "anticipated to increase significantly to approximately 43 million silver equivalent ounces, including 35,000 ounces of gold." Do the math - with silver at $50, that is revenues in the neighborhood of $2 billion +. Even at current prices, revenue would come in over $1 billion a year.
Beyond the initial upfront payment, no ongoing capital expenditures are required to generate this growth and Silver Wheaton does not hedge its silver production. So, if oil increases to $200 a barrel, which I think is very possible, this means the cost of extracting gold and silver from mines would also most likely increase. However, royalty streming companies like Silver Wheaton are unaffected. There is much less risk. Political risks are also minimized as the company's streams are spread out across regions considered to be safe and mining-friendly.
Please do you own due dilligence when investing. This post is meant to be for informational purposes, not investment recommendation. Discloure: I am long SLW.
I hope you enjoyed this post on my favorite Silver Stock for 2012 - Silver Wheaton. I expect great things from the company going forward.