Here’s Why Silver Wheaton Will Continue Rallying

Precious metal stocks have been great performers in 2016 and Silver Wheaton (SLW) is no exception to this trend as the stock is up about 40% year to date. Although it may seem like the rally has cooled off with Silver Wheaton being down 10% from its YTD highs, there are many reasons to believe that it can continue moving higher.

Growth prospects

Sliver Wheaton’s business model accounts for the one thing that differentiates it from other companies. Basically, Silver Wheaton is not actually a miner, it is a streaming company.
Instead of capitalizing billions in tools and dealing with varying labor charges, it offers upfront payments to miners such as Hecla for the right to purchase silver and gold at cheap prices in the future.

As a result, the company gets long-term agreements for a particular amount of yearly production at a truncated fixed price. At present, Silver Wheaton pays approximately $4 an ounce for silver and $400 an ounce for gold. However, it should be known that silver recently closed at around $17 per ounce, and gold came in at $1250 per ounce.

This clearly means that any crusade higher in any of these metals will have a direct and greater influence on Silver Wheaton’s earnings compared to all other companies available in this particular sector.

In addition, there are very few metal firms that pay dividends, and Silver Wheaton is one of them. At present, Silver Wheaton has a 1.1% dividend yield, and that is more than twice compared to 0.5% dividend yield of its rival Barrick Gold.

Apart from this, Silver Wheaton has been in this industry for a very long time and is well aware of the recurring slumps in the industry. Therefore, the company has been aggressively focused on setting up long-term plans that will gain benefits from existing situations over time.

The company has also put a lot of effort into its position in the new financing agreements with stressed mining companies, knowing that this is the correct time to take advantage when miners have insignificant leverage, and the streaming company can come up with tremendously favourable terms by offering vigorous cash.

Conclusion

Silver Wheaton has pulled back a little from its YTD highs, but as mentioned above, there are several reasons to believe that the stock can continue moving higher. Investors should use the pullback to increase their position, as Silver Wheaton will likely shoot higher in the near future.

 

 
Published on Jun 2, 2016
By Vinay Singh

Copyrighted 2016. Content published with author's permission.

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