Which Should You Buy, Silver Wheaton Corp. or Silver Bullion?

Skip silver bullion, iShares Silver Trust (NYSEACRA:SLV), and Sprott Physical Silver Trust ETV (TSX:PHS.U)(NYSEARCA:PSLV). Buy Silver Wheaton Corp. (TSX:SLW)(NYSE:SLW) instead.

| More on:
The Motley Fool
You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn moresdf

The world is drowning in phoney paper money and hidden inflation.

You can almost feel these central bankers sweating, grunting, straining their muscles to the point of exhaustion trying to crank the global economy back into gear. Historically, this has only resulted in one thing: uncontrollable inflation.

How can you protect yourself? You need to own hard assets like precious metals. Silver is particularly prized for its many industrial uses. And once it’s used, it’s gone forever. The cost to recover the little bit of silver from each smartphone and computer chip is enormous.

Investors have always had a few choices when investing in the grey metal, namely bullion and mining companies. However, streaming metal companies like Silver Wheaton Corp. (TSX: SLW)(NYSE: SLW) are better alternatives. Here’s why.

1. Business model

Silver Wheaton is like the banker of the mining industry. The company fronts resource firms with the cash they need to construct new projects. In exchange, Silver Wheaton is given the right to buy a percentage of the mine’s production at a steep discount to market prices.

The advantages of this business model are obvious. Most mining firms run on paper-thin profit margins, which can be wiped out if any problems crop up. Silver Wheaton, in contrast, pays an average of US$4.15 per silver equivalent ounce. At current metal prices, the company generates profit margins between 80% and 90%.

2. Growth

Let’s be honest: Hoarding metal in a vault isn’t a brilliant investment strategy. Sure, you can fondle your silver bars, and they will hold their value better than fiat dollars. But over the long haul, a hunk of metal will do little to actually increase your real wealth.

By contrast, Silver Wheaton is a productive business. It grows and compounds over time. If you had purchased one Silver Wheaton share back in 2004, it was backed up by about 1.5 ounces of silver reserves. Today, that same share now represents over 6.5 ounces of silver reserves.

3. Cost

Storing and insuring bullion is expensive. Institutional investors pay about 0.45% of their bullion value in storage fees every year. Exchange-traded funds, such as the iShares Silver Trust (NYSEMKT: SLV) and the Sprott Physical Silver Trust (TSX: PHS.U)(NYSEMKT: PSLV), charge between 0.50% and 0.56% annually of assets under management as administrative fees.

Last year, Silver Wheaton paid $35.8 million in general and administrative costs. If you think about that in terms of a management fee, you are paying less than 0.38% of the company’s total value in expenses. Those savings can really add up over years.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Metals and Mining Stocks

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Tuesday, February 14

U.S. inflation data and more corporate earnings could keep TSX stocks highly volatile today.

Read more »

A miner down a mine shaft
Metals and Mining Stocks

Are Hydrogen Stocks or Lithium Stocks Better for Long-Term Investors?

Hydrogen and lithium stocks are excellent options in for long-term plays but remain speculative investments, according to some market analysts.

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

3 Top Mining Stocks in Canada to Buy in February 2023

Three Canadian mining stocks are attractive prospects for growth investors in February 2023.

Read more »

Gold bars
Metals and Mining Stocks

Better Buy: Barrick Gold Stock or Kinross Gold?

Here are some key reasons why I find Barrick Gold more attractive than Kinross Gold for long-term investors with a…

Read more »

People walk into a dark underground mine.
Metals and Mining Stocks

This Mineral Company Was on the Move in January 2023

While inflation is easing, this mineral company's stock is rising. How can you make money in this mineral stock?

Read more »

gold stocks gold mining
Metals and Mining Stocks

Is Now the Time to Buy Gold Stocks?

Gold prices can continue to rally throughout 2023, as inflation and interest rates peak, making undervalued gold stocks some of…

Read more »

tsx today
Metals and Mining Stocks

TSX Today: What to Watch for in Stocks on Thursday, February 9

As the ongoing corporate earnings season heats up, TSX stocks may remain volatile.

Read more »

A worker wears a hard hat outside a mining operation.
Metals and Mining Stocks

Cameco Stock Is Approaching its 52-Week High: Time to Invest?

Cameco (TSX:CCO) stock is nearing 52-week highs once more after falling from September last year, but should you wait for…

Read more »