Wheaton Precious Metals seen as inflation hedge amid fixed-cost streaming model

Inflation has been slowing this year, rising at a 2.4% annualized rate in February, down from 2.7% last year and a peak of 7% in 2021. However, with oil prices surging due to the war with Iran, inflation could reaccelerate. Against that backdrop, this article examines whether gold and silver streaming company Wheaton Precious Metals (WPM) could serve as an inflation hedge.

Precious metals as an inflation hedge

Precious metals such as gold and silver have traditionally been good inflation hedges because they are finite resources that are globally recognized. Gold is often viewed as the stronger hedge due to its greater stability and resilience compared with silver. It also has strong demand from central banks, which use it as a store of value.

Silver can also hedge inflation, though it is more volatile. Silver also has higher growth potential because it is an industrial metal used in products such as solar panels and electronics.

How Wheaton Precious Metals is positioned

Wheaton Precious Metals does not mine silver and gold. Instead, it provides capital to miners to develop and expand mines. In return, it receives the right to a portion of production at a set price.

The company has locked in fixed costs of $650 per ounce for gold and $2.50 per ounce for silver through 2030. With these costs fixed, Wheaton faces no inflationary cost pressures, allowing it to benefit from higher silver and gold prices during inflationary periods.

Key data points

• Current price: $135.66
• Market cap: $62B
• Day’s range: $129.61 - $137.38
• 52-week range: $68.03 - $165.76
• Volume: 118K (Avg vol: 2.6M)
• Gross margin: 72.17%
• Dividend yield: 0.51%

Production growth and dividend outlook

In addition to fixed costs, Wheaton’s inflation-hedging profile is supported by expected growth in production from its mining partners. The company currently expects its gold equivalent ounces to rise 11% this year and 50% by 2030, based on recently acquired streams and mining developments by its partners.

Wheaton also has financial capacity to fund new streams, which could further support its growth. The article notes that this rising production should drive earnings and cash flow growth even if precious metals prices stagnate.

That outlook is linked to the company’s dividend plan, including a recent 18% hike to its payout and continued commitment to a progressive dividend.

Why it may hedge inflation more effectively than metals alone

Wheaton’s combination of inflation-protected costs, upside participation in higher precious metals prices, and production growth has enabled it to outperform silver and gold historically. The article concludes that, as a result, Wheaton has historically acted as an even better hedge against inflation than precious metals themselves.