Portfolio manager Lyle Stein reveals his highest-conviction dividend and resource stocks right now: Peyto Exploration (PEY.TO) for natural gas exposure, Sprott Inc. (SII.TO) as a leveraged play on gold, silver, and uranium, and First Majestic Silver (AG.TO) as a way to capture the silver rally.
Peyto Exploration & Development Corp (PEY.TO)
- Owned for 2-3 years, initially bought at a 14% dividend yield, providing significant portfolio income (e.g., a 2% position contributes 28 basis points to total portfolio dividend).
- High debt was a market concern, but the company has successfully reduced it.
- Current dividend yield of 7%, viewed as equivalent to total return on equities.
- Strong capital discipline and hedging practices, which were essential due to past debt and now position the company to benefit from rising natural gas prices (e.g., $4 aeco gas flows more directly to them).
- Not deterred by Canadian natural gas surplus from anticipated LNG terminals; low prices deter drilling, leading to eventual price recovery, and natural gas serves as a key transition fuel.
Sprott Inc. (SII)
- Provides financial exposure to the resource sector with leverage, particularly through precious metal ETFs.
- Leverage to gold, silver, and uranium prices via assets under management (AUM) growth in their physical ETFs.
- 40 basis point management fee on AUM is nearly “free money” with low additional operational costs (no need for extra analysts).
- AUM has exploded higher after years of building funds, rewarding patience.
- Hopes for a nice dividend increase as AUM grows.
- Not viewed as a traditional asset manager but as a fascinating play in financial services, fitting into materials allocation despite commodity cycle risks, which are mitigated by improved industry capital discipline.
First Majestic Silver Corp (AG)
- Primarily a call on silver, which typically lags gold in precious metal cycles but catches up in multiples.
- Adds direct silver exposure, as the portfolio previously lacked it.
- Known and followed for years; well-managed with mines in Mexico (not top-tier jurisdiction but acceptable).
- Unique features include an in-house mint for silver processing and a retail component.
- Dividend policy pays out a tiny percentage of revenue, expected to increase as silver prices rise and revenues grow.
- Recent acquisition of Gatos Silver (a year ago) initially dinged the stock but is now paying off, reflecting improved capital discipline in the sector.
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