Royal Gold Inc. (Nasdaq:RGLD) is a Colorado-based gold company that is different than most. It has been a controversial name in the past because of limited investor knowledge, but recently, it may have changed its position among the second- and third-tier gold stocks.

The company has been around since 1981, originally as an oil and gas exploration and production company. With the collapse of the oil markets in the 1980s it changed its focus to gold. The stock market crash of 1987 also made the company shift its focus from being a producer to that of a minority interest investor.

Current Portfolio
It claims to hold interests in three of the largest gold mines in North America and still only has 15 employees as of its latest report. This used to be even smaller with fewer than 10 employees just a few years ago.

If you look through its portfolio, you will see that the company is a co-royalty partner with some of the largest names in the sector: Placer Dome, Rio Tinto (NYSE:RTP), Barrick Gold (NYSE:ABX), Newmont Mining (NYSE:NEM), Coeur d'Alene Mines (NYSE:CDE) and others.

Most of these are located in Nevada, although it also owns royalty streams in Montana and Argentina. On the exploration side it owns royalty interests in Russia, Bulgaria, Nevada, and California. It recently closed on a $20.5 million transaction to buy into the Pascua Lama project on the border between Argentina and Chile.

Why Investors View It Differently
What made Royal Gold different than most gold companies is that it is not a miner of gold itself. The company is one of the few U.S.-based gold companies that is also a listed firm deemed a "royalty company".

These are more common in Canada and in Europe, but this may be the only exchange-listed company based in the United States. It owns and manages royalties on precious metals in a geographically diversified portfolio. This allows the company to collect payments from successful mining operations without the traditional capital expenditures and operating costs associated with being a traditional miner. The company does hedge and has sliding royalty scales, but it also tries to buy floors in these sliding scales.

What's the Impact of Its Recent Changes?
The company had a stock offering earlier this month. It sold 4 million shares at a price of $29.25 a share to raise a net of $110.9 million after commissions and expenses. The sale was earmarked for repayment of its revolving credit facility with HSBC Bank USA, to fund acquisitions, and the hallmark "general corporate purposes".

HSBC (NYSE:HBC) was the sole coordinator, but it also used Merrill Lynch (NYSE:MER), JP Morgan (NYSE:JPM), National Bank Financial, and UBS (NYSE:UBS) as co-managers. Without any recent major analyst coverage, it should now be expected that Royal Gold will get more coverage from Wall Street if you look at the underwriting group.

In its previous report (December 31, 2006) the company listed $70.9 million in cash and roughly $12.4 million in liabilities. After adding the $99.7 million in intangibles and the rest of the assets, it had total assets of $183.39 million. So, its balance sheet just went from very healthy to incredible.

Usually shareholders do not greet dilution from a stock offering with much love, but for longer-term investors the company just made the equivalent of a debt elimination and gave itself the ability to fund many more royalty projects without sacrificing its dividend.

Dividend Growth and Market Capitalization
In 2004, it paid 15 cents in annualized quarterly dividends. The dividend grew to 20 cents in 2005 and to 22 cents in 2006. It paid out a 26 cent annualized dividend in January, so if this level holds, it will have a dividend yield of roughly 0.9% at current prices. One thing investors love to see is steady dividend growth, and, while this is a small nominal dividend, it is better than most gold miners'. Its market cap is now more than $700 million, which moves it closer and closer to the $1 billion that many analysts use as a floor before initiating coverage.

Stock History and Metrics
Trading in the $30 range, the stock is in the middle of its $23 to $37.50 trading range over the last 52 weeks. In early 2006, it briefly traded north of $40.00, and it also traded under $10.00 five years ago.

Its trailing P/E ratio of 44 doesn't make it cheap, but those are a bit hard to compare directly and it still has the growth and acquisition story behind it. It still trades at close to three-times stated book value, but that is under many of the gold growth stocks (because of the royalty status).

What Could Derail This?
If you ever met a gold company whose following is not tied mostly to the price of gold, then it must not be a real company. As gold prices grow, interest in the second- and third-tier gold companies skyrockets. However, when gold prices start falling rapidly or get too low then finding gold stock investors becomes a chore.

The situation is probably no different here. Its dividends will obviously depend on its royalty streams. The recent influx of IPOs in master limited partnerships and other "Trust" securities in the last few years has also helped the public understand the company, but, if investor comfort-levels start to exit, then one could also see some investors exit from this stock.

Looking to cook up a market-stomping stock portfolio? Check out our FREE report "7 Ingredients to Market Beating Stocks" and get started right now!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

Trading Center