Balance sheet healthy
Goldcorp’s balance sheet is currently rated BBB+ by Standard & Poor’s and BAA by Moody’s. During its Investor Day presentation on April 9, Goldcorp’s management pointed out that an investment-grade balance sheet is important. However, the company is ready to receive a slight rating cut—such as from BBB+ to BBB—to fund an acquisition, which makes sense from company’s long-term perspective. Its net debt to EBITDA (earnings before interest, tax, depreciation, and amortization) is close to 1.6x.
Goldcorp’s liquidity is also comfortable at $1.7 billion, including $54 million in cash and cash equivalents, as well as $1.16 billion of an undrawn revolving facility.
Dividend safe under current conditions
Goldcorp is a peer-leading dividend payer. Its dividend yield is close to 3.3% against Kinross Gold’s 0.0%, Newmont Mining’s 0.5%, Agnico Eagle’s (AEM) 1.15%, and Yamana Gold’s (AUY) 1.7%. Goldcorp’s management maintained that its dividend is safe at current commodity prices, adding that it is the company’s primary goal to achieve free cash flow in excess of its $500 million dividend.
However, if gold prices dip substantially below $1,200 per ounce, the company could revisit its dividend payments. Also, if a merger or an acquisition opportunity presents itself, which makes sense from a business perspective, its management would need to pull some levers. One option is the dividend, and the other is $1 million in shares of Tahoe Resources in addition to incremental debt.
Investors can gain access to the gold sector through the VanEck Vectors Gold Miners ETF (GDX), which invests in intermediate and senior gold producers. Goldcorp makes up 7.6% of its holdings. The SPDR Gold Trust ETF (GLD) tracks spot gold prices.