Barrick Gold vs. Goldcorp

goldcorp-gold-barsBack in April I wrote an interesting post asking the question Are Gold Stocks Cheap?  In that post I looked at the two leading gold producers, Barrick Gold (ABX), and Goldcorp Inc. (G). Both these multi-billion dollar companies trade on the TSX, but they are by production tonnes and profit, the world’s leading gold miners and gold producers. They generally have solid fundamentals, low debt, and pay a dividend. Like most mining companies the dividend yield is lower.  Many low dividend yield stocks have tremendous potential for capital growth that far outweighs the yield.

ABX and G together make up nearly 5.5% of one of Canada’s most popular ETFs XIC.  These two gold producers also make up Canada’s most popular ETF, XIU. Approximately 6% of XIU is composed of Barrick and Goldcorp. You can add on another 2% onto both these ETFs for the other gold producers such as Yamana Gold Inc. and Kinross etc. You may have no desire to invest in gold producers. But if you are investing in Canadian index ETFs, then by default you already are investing a large portion of your portfolio in these types of companies. So which one to choose, Barrick or Goldcorp?

Is Goldcorp the Better Choice?

Obviously if you are investing in Goldcorp or Barrick, you are not investing for the yield. Although the dividend yield for Barrick Gold is higher than Goldcorp, it has much more debt and a slightly lower profit margin (see table below). Goldcorp’s very low debt-to-equity ratio of 3.42 is much lower than Barrick Gold’s ratio of 50.51. A debt-to-equity ratio of 50 is low compared to many other big blue-chip dividend payers, however when compared to each other Goldcorp has a stronger balance sheet. However, Goldcorp cut its 2012 forecasts after recent operational and production issues. Goldcorp is a monthly dividend payer, and Barrick pays its dividend quarterly.

Company Ticker Price Market Cap Dividend Yield Payout Ratio Debt-to-Equity Profit Margin
Barrick Gold ABX 34.66 34.6 B 2.33% 17.9 50.51 30.35%
Goldcorp G 32.86 26.6 B 1.66% 25.9 3.42 31.10%

The Shakeup at Barrick

Barrick had a surprise management shake-up back in early June, ousting long time CEO Aaron Regent. This was a big surprise to institutional investors and analysts who considered Mr. Regent well respected by his peers. In addition Mr. Regent received a glowing review from his board only a few months earlier. Shareholders are still in the dark. Surprise events like these can also raise serious questions for investors.

The Price is Still Declining

Whereas gold bullion is expensive, gold producers are certainly not. As I pointed out in my previous post, Are Gold Stocks Cheap?, Barrick and Goldcorp are now trading at their three year lows, and may represent a buy opportunity in the near future. I also suggested that there may be future declines in the price of Gold Producers. This still appears to be the case. There is still a slowing demand in resources for China, the possible effects of share dilution in the minor sector, and demand for gold bullion over gold producers. With these gold producers now trading at their three year lows, I’m still waiting to see how much further the price will fall.

11 Responses to “Barrick Gold vs. Goldcorp”

  1. farcodev

    Jul 23. 2012

    Good outlook, as usual, about these gold stocks DN !

    I have a small question, when I look the dividend returns it’s displayed in US$, is it mean that these dividends aren’t tax free in a TFSA ? like if it was a NYSE stock ?

  2. The Dividend Ninja

    Jul 23. 2012

    Farcodev,

    Both Barrick and Goldcorp trade on both exchanges the TSX and NYSE. Barrick trades under the symbol ABX on both exchanges. Goldcorp trades under the symbol G for the TSX, and GG for the NYSE.

    As a Canadian investor, any dividends from Canadian corporations are not taxable in a TFSA. However dividends from U.S. Stocks are considered foreign income, and thus taxed in the TFSA (but not the RRSP).

    So as a Canadian investor, you should only hold ABX-T and G-T in your TFSA. Does that answer your question?

    Cheers!

    • farcodev

      Jul 23. 2012

      DN,
      First thanks for your fast answer :)

      The problem that has generated my question is that RBC Direct Investing display the Goldcorp Inc(G:TSX, CA) dividends like that:

      Monthly Dividend USD 0.0450

      And yes it’s the quote detail of the G:TSX, so it’s why I’m a bit confused by this information, and it’s not the first TSX stock that I see with USD dividends, or at least displayed like that by the RBC web application :s

      For ABX-T it’s the same too:

      Barrick Gold Corp(ABX:TSX, CA) , Quarterly Dividend USD 0.2000

      Really confusing…

      • The Dividend Ninja

        Jul 23. 2012

        Farcodev,

        If you are a Canadian Citizen residing in Canada then your dividends will be paid in Canadian Dollars. There is no doubt about that!

        However if you are an Australian citizen, then your dividends would be paid AUD Dollars. If you are a U.S. citizen or any other country in the world, then your dividends would be paid in USD Dollars. Even though the securities are traded on the Canadian exchnage, you would in this case receive your dividends in USD.

        The only possible explanation I can think of is you are not a Canadian citizen investing in Canadian securities. Otherwise give your broker a call – they will always help you out. ;)

        Cheers

        • farcodev

          Jul 24. 2012

          Thanks again (and a lot !) for your answer, I’ll call them. :)

          Because apart these two and one other the rest is OK, and I receive my dividends in CAD $.

        • MrX

          Sep 29. 2012

          Nice discussion. I wasn’t aware that dividends could be paid in a different currency than the currency of the stock. This makes it all the more troublesome for accounts that can only hold one currency and also in registered account that can hold both. I have a setting that tells it to resolve sales in the currency of the stock. But I wonder what happens with the dividends.

          I had made a mistake before where I did not have the correct setting and I sold a US stock and I got charged the currency conversion which essentially negated my profits. I find these automatic conversion charges to be the worst aspect of trading with multiple currencies.

          • The Dividend Ninja

            Sep 30. 2012

            Mr. X,

            It really does make things more complicated doesn’t it? U.S. invesors can run the risk of collecting their dividends in Canadian dollars as well (i.e. Canadian bank stocks purcahsed on the NYSE). The only real way to find out, is to ask your discount broker. ;)

            Having said that a few bloggers such as The Canadian Couch Potato, Vix Money, Canadian Capitalist, and The Passive Income Earner discuss “journaling” your shares, and TD can automatically wash your trades.

            It would be nice if you could have your dividends parked in a MMKT Fund of the currency such as USD or CAN dollars, then deal with the amount later.;)

            Cheers!

  3. Sandra

    Dec 20. 2012

    Both stocks are lower again today. Do you think it may be the right time to buy?

    • The Dividend Ninja

      Dec 20. 2012

      Hey Sandra,

      I really have no idea where the future prices of either stock is going. But over a 5 year comparison, they are attratively priced. What I’m waiting for is to see what happens over the next couple of months or so. I’d like to see if I could get them even cheaper. I’m not rushing in yet. ;)

      Cheers