Get Paid to Play Gold

By: Frank Holmes | Fri, Nov 11, 2011
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With money markets and Treasuries yielding next to nothing these days, investors are finding income in new places. One area those investors should consider is gold mining. With gold rising in value, mining companies are reaping record profit margins, yet the stock prices are depressed due to lack of investor interest. A solution for both gold companies and investors may be dividends, specifically gold-linked dividends.

More Gold Miners are Paying Dividends

Several top-tier gold producers that are benefiting from higher gold prices have begun to share a portion of their profits with shareholders via a dividend payout. Thirteen of the world's largest gold producers are expected to pay nearly $2 billion in dividends this year, according to MineFund, making it the largest payment in gold stock history. The Financial Post also reported that miners' dividend payments are up 75 percent on a year-over-year basis, compared to a 26 percent increase in 2010.

Yamana Gold is just one of several large producing miners to report increased revenues, expanding cash flows and record adjusted earnings. Because of the company's strong balance sheet, Yamana increased its dividend for the second time this year to $0.20 per share annually. When discussing the enhanced payouts, CEO Peter Marrone cited that the company "continued to focus on delivering growth across all measures, enhancing shareholder value and generating significant cash flow in the third quarter."

The latest payout represents a 67 percent increase over the past 12 months and the second increase this year.

Other miners, such as Newmont Mining, implemented a gold-linked dividend, which means that the amount of the dividend the shareholder receives will be linked to the average price of gold. As the yellow metal trades higher, the company would increase dividends paid out to its investors. Conversely, if gold falls in value, dividend payouts would decrease.

Eldorado Gold has also come out with a similar dividend policy, linking dividends to the price of gold. As shown in the chart below, Eldorado Gold anticipates its next dividend payout will be 67 percent higher than the previous quarter.

Barrick Gold also announced a third quarter dividend increase during its earnings release. Over the past five years, the company has increased its dividend by more than 170 percent on a quarterly basis. The company's latest dividend--$0.15 per share-- represents a 25 percent increase from the prior quarter.

Barrick estimates its third quarter gold cash margins have increased by 55 percent on a year-over-year basis, driven by the company's leverage to higher gold prices. The company says it will continue to offer its shareholders a rising income stream while also expanding operations in Pueblo Viejo, Pascua-Lama and Nevada.

Dividends on the Rise in the Gold Sector

While the share prices of these miners have been punished in 2011, increasing dividends allow investors to get "paid to wait" for the market to turn around. The dividends are a cash incentive for investors to hold shares of the company and allow them to participate in rising earnings. We like that idea.

We believe gold equities will eventually be rewarded by the market and rise with higher gold prices. In the meantime, investors of gold miners may benefit from income linked with rising gold.

 


Read: Which Gold Miners Have the Largest Upside?

The following securities mentioned in the article were held by one or more of U.S. Global Investors Fund as of 09/30/11: AngloGold Ashanti, Agnico-Eagle Mines, Barrick Gold, Eldorado Gold, Franco-Nevada, Goldcorp, Gold Fields, Harmony Gold Mining, IAMGOLD, Kinross Gold, Newmont Mining, Randgold, Royal Gold, and Yamana Gold.

 


 

Frank Holmes

Author: Frank Holmes

Frank E. Holmes
Chief Executive Officer
Chief Investment Officer
U.S. Global Investors

Frank Holmes

Frank Holmes is CEO and chief investment officer of U.S. Global Investors, Inc., which manages a diversified family of mutual funds and hedge funds specializing in natural resources, emerging markets and infrastructure.

The company's funds have earned more than two dozen Lipper Fund Awards and certificates since 2000. The Global Resources Fund (PSPFX) was Lipper's top-performing global natural resources fund in 2010. In 2009, the World Precious Minerals Fund (UNWPX) was Lipper's top-performing gold fund, the second time in four years for that achievement. In addition, both funds received 2007 and 2008 Lipper Fund Awards as the best overall funds in their respective categories.

Mr. Holmes was 2006 mining fund manager of the year for Mining Journal, a leading publication for the global resources industry, and he is co-author of "The Goldwatcher: Demystifying Gold Investing."

He is also an advisor to the International Crisis Group, which works to resolve global conflict, and the William J. Clinton Foundation on sustainable development in nations with resource-based economies.

Mr. Holmes is a much-sought-after conference speaker and a regular commentator on financial television. He has been profiled by Fortune, Barron's, The Financial Times and other publications.


Please consider carefully a fund's investment objectives, risks, charges and expenses. For this and other important information, obtain a fund prospectus by visiting www.usfunds.com or by calling 1-800-US-FUNDS (1-800-873-8637). Read it carefully before investing. Distributed by U.S. Global Brokerage, Inc.

Copyright © 2010-2014 Frank Holmes

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