Dividend investors don't like risks, and the mining sector is one in which many companies avoid paying dividends in order to preserve cash for inevitable problems that arise. Franco-Nevada (NYSE: FNV) has taken a different angle at making money in the precious metals and energy sector, choosing not to mine or drill itself but rather to provide financing to partners in those industries. Franco-Nevada's streaming and royalty model gives it a return that's connected to the prospects of natural resources, but it does so in a way that limits risk and allows the company to focus on its core strengths.
Even though Franco-Nevada always has promising uses for its cash, the company also has a commitment to dividend investors. For a decade, the streaming giant has managed to give shareholders annual increases in dividend payments. Yet with new opportunities for investment ahead, could Franco-Nevada reverse course on its friendly dividend policy in 2018? Let's take a closer look at Franco-Nevada with an eye toward deciding whether investors are likely to get another boost to their payout in 2018.
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Dividend stats on Franco-Nevada
How Franco-Nevada has stayed so consistent
The amazing thing about Franco-Nevada is that it has managed to keep its payouts rising even as the commodity markets have been extremely volatile. Gold enjoyed a huge bull-market run during the 2000s and early 2010s, but it then suffered a big price decline that took the wind out of the industry's sails. Oil prices have been even more volatile, with multiple moves upward and downward to make it tough on producers trying to make decisions on where and how much to drill for oil and gas.
Whenever you look at a chart of Franco-Nevada's dividends, you have to keep in mind that those charts can be misleading. Over time, the company has shifted from semiannual dividend payments to monthly payments and then back to quarterly payments. The chart below shows the resulting abrupt changes, reflecting the fact that more frequent payments are smaller but failing to indicate the number of those payments. Moreover, not all charts adequately deal with the fact that Franco-Nevada was listed only on Canadian stock exchanges during the early part of its history, and even though it now makes its dividend payments in U.S. dollars rather than Canadian dollars, some early payouts showed fluctuations based on exchange rates.
Why investors can feel comfortable with Franco-Nevada's dividends
Franco-Nevada's management has always addressed questions about dividends in an upbeat way. CEO David Harquail has said that Franco-Nevada pays out dividends with the idea that it never wants to reduce the payout below whatever it paid in the past.
Some investors have feared that a rising emphasis on acquisitions could lead to dividend stagnation or even cuts. Yet the company has been quick to dispel those concerns. In fact, Harquail has even gone a step further, suggesting that new acquisitions will play an essential role in ensuring future dividend growth. Essentially, by being smart about finding lucrative assets where producers need financing, Franco-Nevada thinks it can take advantage of a challenging environment in oil and gas and ink favorable agreements that will pay off in the long run.
Will Franco-Nevada raise its dividend in 2018?
The importance of those new deals showed itself in Franco-Nevada's most recent results. Revenue actually fell slightly compared to the prior year's quarter, and only slight gains in adjusted net income showed some of the challenges that the industry has faced. The company has moved forward with more oil and gas acquisitions, hoping to bring that portion of its business up to about 20% to complement its gold, silver, platinum group metals, and base metals exposure on the mining side.
Until earnings growth returns to past levels, Franco-Nevada probably won't make huge dividend increases. But the company does want to preserve its streak of rising payouts for another year. The most likely outcome is another increase of $0.01 per share to bring the quarterly payout to $0.24 per share. Only if there's a big move higher in commodities are investors likely to see a much more generous increase in 2018.
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