Rocky Mountain High: Gold and Silver Dividends
Chalk it up to the thin air, or maybe the iconic Rocky Mountain high, but something has inspired select presenters at this week's Denver Gold Forum to entice prospective investors with new or increasing dividends.
Eldorado Gold (NYS: EGO) is looking to lead the way by targeting more than a threefold increase from 0.60% to a 2% yield "over the next few quarters." This might come as something as a surprise to Fools who are keyed in to Eldorado's aggressive production growth outlook, but the company's robust cash flow from reliably low-cost operations makes both priorities attainable. Aided by a very competitive cash operating cost of $397 per ounce of gold, Eldorado achieved $115.7 million in operating cash flow in the second quarter alone.
But if gold and silver prices continue to launch meaningfully beyond currently prevailing prices -- as I believe they are extremely likely to do -- a pair of miners linking their dividend payouts to their average realized sales prices could retake the lead in the industry's bid to enhance investor interest through rising income yields.
Legendary silver producer Hecla Mining (NYS: HL) this week joined major gold producer Newmont Mining (NYS: NEM) as the second miner thus far to peg future dividend payments to realized metal prices. Hecla anticipates an inaugural dividend during the fourth quarter of $0.03 per share, adding that each subsequent increase of $5 in the average realized silver price for the trailing quarter will contribute another penny to the quarterly payout. I have maintained for several months now that Hecla shares entered bargain territory in the wake of an overdone thrashing earlier this year, and I view the company's timely initiation of one of the industry's most alluring cash dividends as a strong potential catalyst for renewed momentum in the shares.
One by one, and little by little, miners are stepping up to the plate to offer investors a share of the expanding cash proceeds from quality mining operations. But not everyone was compelled by the Rocky Mountain high to start handing out the cash. Randgold Resources (NAS: GOLD) CEO Mark Bristow appears to find the payouts from some of the majors rather ironic, pointing out: "They diluted the shareholders and suddenly now they've got so much money that they have to go give it back to the shareholders." Having witnessed much of that dilution firsthand as a longstanding precious-metals investor, I find that critique resonating with me to an extent. But the industry's margin expansion has indeed been noteworthy of late, while share performance for the industry at large has been thoroughly underwhelming. Under the circumstances, I believe that further dividend increases by substantial, profitable producers remain a reasonable expectation. In addition to the trio of standouts I've referenced, I believe that investors in Goldcorp (NYS: GG) , Agnico-Eagle Mines (NYS: AEM) , and Silver Wheaton (NYS: SLW) are likely to enjoy respectable income yields in due course.
- Add Eldorado Gold to My Watchlist
- Add Hecla Mining to My Watchlist
- Add Silver Wheaton to My Watchlist
- Add Goldcorp to My Watchlist
- Add Agnico-Eagle Mines to My Watchlist
At the time this article was published Fool contributorChristopher Barkercan be foundblogging activelyand acting Foolishly within the CAPS community under the usernameTMFSinchiruna. Hetweets. He owns shares of Agnico-Eagle Mines, Eldorado Gold, Goldcorp, Hecla Mining, and Silver Wheaton. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has adisclosure policy.
Copyright © 1995 - 2011 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.