I’ve long celebrated Polymetal International (LSE: POLY) as a great share to buy on the robust outlook for gold prices, a situation created by low interest rates and intense geopolitical and macroeconomic uncertainty.
There’s a growing pile of evidence that backs up these robust price forecasts for 2019 and beyond. Strong gold demand from institutional investors is something I’ve touched upon in depth before, but latest data from the World Gold Council (WGC) shows just how strong metal off-take from other sources is as well.
Gold demand bubbles higher According to the organisation, central banks bought 145.5 tonnes of gold in the three months to March for the purposes of “diversification and a desire for safe, liquid assets.” This was also the highest level of first-quarter buying from such institutions for six years.
But demand for the metal as a pure rush-to-safety asset wasn’t the whole story behind strong gold demand in quarter one. Indeed, the WGC also noted that global jewellery sales rose in the period because of resplendent Indian buying, supported by a weaker rupee and the onset of the traditional wedding season. In fact, gold jewellery sales in the country were 5% higher year-on-year at 125.4 tonnes.
Today looks as good a time as any to get exposure to gold, then, although theoretically it’s always a good idea to have exposure to gold in your investment portfolio as a lifeboat in troubled times when your other holdings could take an almighty smack.
I would argue that the best way to go about this is by holding gold stocks that pay a dividend, rather than the physical metal itself which, well, doesn’t. And what a great company Polymetal is in this respect, the digger sporting giant yields of 5.4% and 5.8% for 2019 and 2020 respectively.
Throw a dirt-cheap valuation into the mix — the FTSE 250 firm trades on a P/E ratio of 9.3 times right now — and I reckon it’s a brilliant income share to load up on right now.
Yields north of 9% Bovis Homes Group (LSE: LON:BVS) is another big dividend payer I’ve tipped before, in this case on the back of strong homes demand from first-time buyers and a shocking shortage of affordable housing in the UK.
And fresh data from Nationwide this week has reinforced my bullish take on the business. According to the building society, mortgage demand from first-time buyers continued to climb in April, with loans creeping even closer towards levels seen just prior to the financial crisis a decade ago.
It’s not a shock, then, that City analysts are expecting Bovis’s earnings, like those over at Polymetal, to keep growing through to the end of next year at least. Consequently dividends are expected to keep rising at the builder, too, resulting in monster yields of 9.3% for 2019 and 9.6% for next year.
I’d also be happy to hold this share indefinitely given the many years it will take the government to solve the homes supply problem. I reckon Bovis has all the tools to pay exceptional returns and, given that it trades on a low forward P/E multiple of 10.3 times right now, consider it to be one of the best bargains on the FTSE 250.
Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
Motley Fool UK 2019