I recently explained how UK share investors can make a fortune from a booming gold price. But buying into silver-producing companies also remains a good idea as Britain’s economic hangover from Covid-19 continues, and Brexit brinkmanship will likely drag on until the very end of the transition period at the close of 2020.
Buying shares in FTSE 100 digger Fresnillo would appear a good idea in this climate. The entire precious metals suite has gained in 2020 on the back of the once-in-a-lifetime upheaval created by the coronavirus crisis. But some believe that silver might outperform gold in the short-to-medium term as the physical silver market moves into deficit.
On top of this, the high gold: silver ratio — which measures the relative strength of gold against silver — suggests that the latter has much more catching up to do to match its bigger brother. The ratio currently sits around 75:1, a vast difference from a reading of just below 50 averaged in the last century.
Too Cheap To Miss?
Fresnillo’s a great way to ride this train. And particularly as its shares look far too cheap to miss on paper. This UK share trades on a forward price-to-earnings (PEG) of 0.5. Any reading below 1 is widely considered to represent a bona-fide bargain. The FTSE 100 digger isn’t expected to be a flash in the pan, either. City analysts reckon Fresnillo’s profits will explode 88% in 2020 and then 81% next year.
This bright profits outlook gives dividend investors plenty to shout about, too. The number crunchers expect Fresnillo’s full-year dividend of 14.5 US cents per share in 2019 to swell to 20 cents this year. This creates an inflation-mashing 1.1% yield. And things get even better for 2021; a forecasted 39-cent payout turbocharges the dividend yield to 2.2%.
More Than Just A Short-Term Buy
Fresnillo’s share price has more than doubled during the course of 2020. And I think that improving signs on the production front, allied to the bright silver price outlook, bodes well for more gains during the rest of the year. Most recent data showed total second-quarter output rise almost 3% from the prior three months. This came in at 13.6 million ounces and was driven by better ore grades at the UK share’s Fresnillo and Ciénega assets.
Things look good for Fresnillo during the short to medium term, then. But how about further out? Well this is where the beauty of buying silver instead of gold is shown. Silver has a major role as an industrial as well as investment metal, certainly more so than the yellow metal. It’s used in everything from home electronics and solar panels, to water purification devices, medicines and car and jet engines. This means that the silver price — and with it the Fresnillo share price — should gain once the global economic recovery kicks in too. I’d buy this UK share today and hold it until the middle of the decade at least.