Gold miners increase payouts

The rising popularity of gold exchange-traded funds has come at the expense of gold-mining shares.

By Jim J. Jubak Dec 15, 2011 5:11PM
Image: Birds nest with golden eggs © Rob Casey/Brand X/Getty ImagesGold mining companies are getting the dividend religion too.

They’re adding dividend payouts in an effort to close the "attractiveness gap" with gold ETFs.

On Nov. 25, I wrote about the general resurgence of dividends. Given the lack of any capital appreciation in the current market and an increasing cynicism among investors about stock buybacks, companies have started to increase dividend yields as a way to support share prices and keep on the good side of capital markets.

Gold-mining companies have an added incentive. The rising popularity of gold ETFs (exchange-
traded funds) has come at the expense of gold-mining shares. Investors who want to create a hedge on inflation or currency depreciation can use ETFs as their vehicle instead of buying shares of gold-mining companies. The demand for gold ETFs has cut into the demand for gold-mining shares so much that gold-mining stocks have lagged increases in the price of gold. So, for example, while gold is 46% higher than it was in December 2009 (as of the close on Dec. 13), shares of American Barrick (ABX) are just 26% higher.

But neither physical gold nor gold ETFs pay a dividend, and this seems to be how gold-mining companies -- some of them anyway—have decided that they can compete. Goldcorp (GG), for instance, has increased its monthly payout to 3.4 cents a share from 3 cents in November 2010 from 1.5 cents a share in 2009. IAMgold (IAG) raised its dividend on Dec. 9 to an annual 25 cents a share from last year’s 6 cents a share payout.

The most ambitious effort comes from Newmont Mining (NEM), which has pledged to link its dividend payout to the price of gold.

None of this makes any gold stock a high-yield dividend play. Goldcorp pays a dividend yield of 1%. IAMGold is at 1.1%. Newmont Mining at 1.6%. That’s still way below the payout of oil shares. And it’s not enough to make up the appreciation gap between ETFs and gold mining stocks.

But for an industry that for a long time has thought that a bigger-is-better acquisition strategy was the ultimate in adding shareholder value, this new awareness of dividend yield is radical thinking.

At the time of this writing, Jim Jubak didn't own shares of any companies mentioned in this post in personal portfolios. The mutual fund he manages, Jubak Global Equity Fund (JUBAX), may or may not own positions in any stock mentioned. The fund did own shares of Goldcorp as of the end of September. For a full list of the stocks in the fund as of the end of the most recent quarter, see the fund's portfolio here. 



Tags: ABXGGgoldinvesting strategyinvestmentsJim Jubak
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2Comments
Ice Cold Sangria
Dec 15, 2011 11:17PM
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NoteYou load 16 tons and what do you get . . . . . . . Note

 

Gold sounds good because Fitch just delivered the bank downgrades.  Tomorrow's opening bell is going to be a gasser!

 

                                    Gift with a bowGift with a bowGift with a bow  MERRY CHRISTMAS!  Gift with a bowGift with a bowGift with a bow

upperdoper
Dec 16, 2011 6:31AM
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Sad No matter what gold is still subject to speculations and at speculative prices that bound to to go up and down and since it is pyramidacally structured it could go go even further but it could also go down to its true value which is its intrinsic value.Disappointed
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