Why buy silver (NYSEARCA:SLV) when you can add exposure to it with a dividend attached? Silver Wheaton (NYSE:SLW) provides this opportunity. When buying the SLV, an investor must sell at a higher price then the initial purchase amount to gain profits. With Silver Wheaton, there is a dividend around 1% that rewards the more patient investor, providing dividend income to match potential capital appreciation. It also provides more safety as an investment overall, because it generates income for the investor no matter what the price of silver does.
Here is a general summary from the company's website:
"Established in 2004, Silver Wheaton has quickly positioned itself as the largest metals streaming company in the world. The company currently has fifteen silver purchase agreements and three precious metal agreements where, in exchange for an upfront payment, it has the right to purchase all or a portion of the silver production, at a low fixed cost, from high-quality mines located in politically stable regions."
Silver Wheaton doesn't actually mine any silver. The company currently has fifteen silver purchase agreements and three precious metal purchase agreements with thirteen mining partners. The full list of streaming agreements, as well as the life of the contracts, can be seen here, and the majority of these contracts are long-term. This provides a less risky investment for those desiring to get into silver.
According to the company, "The predetermined price that Silver Wheaton pays for future silver production is approximately US$4 per ounce, with a small inflationary adjustment, ensuring that costs are fixed." The company then turns around and sells the silver for huge profits. Boasting a whopping 61.5% net profit margin (according to Forbes), Silver Wheaton is a rock-solid revenue generator, with a rock-solid balance sheet.
With an average agreement price of $4, the price of silver would have to completely collapse for Silver Wheaton to be at risk of losing money.
One of the major, and maybe only, flaws in Silver Wheaton's successful business model is growth. If all of the company's contracts dry up (by inevitably expiring), so does the revenue they generate for Silver Wheaton. Luckily most of the contracts are long-term and will last for awhile. Keeping this in mind, Silver Wheaton is still pursuing new opportunities.
The company just closed a recent deal that will add 4.9 million ounces to its long-term average annual silver equivalent production figures. Silver Wheaton will receive 100% of silver production for the life-of-mine in this new deal.
Most mine owners deliver to SLW for cash up front, because the silver is a by-product of a base or precious metal that is the core of the mining operation's business. Approximately 70% of silver comes into existence as a by-product. This gives Silver Wheaton an opportunity to purchase the by-product at a great price. Silver Wheaton is like a value investor in the mining industry.
Silver can be invested in for numerous reasons: as a hedge against inflation, as a precious metal, or for other numerous speculative reasons. Silver is used in everything; from electronics to solar panels and even in the medical industry. Also, Silver is extremely volatile and risky, but with a dividend to cushion against sudden price drops, Silver Wheaton is a good way to invest in the white metal.
Disclosure: I am long SLW. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.