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 (NYSE: 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 (NYSE: HL  ) this week joined major gold producer Newmont Mining (NYSE: 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 (Nasdaq: 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 (NYSE: GG  ) , Agnico-Eagle Mines (NYSE: AEM  ) , and Silver Wheaton (NYSE: SLW  ) are likely to enjoy respectable income yields in due course.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Agnico-Eagle Mines, Eldorado Gold, Goldcorp, Hecla Mining, and Silver Wheaton. Try any of our Foolish newsletter services free 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 a disclosure policy.


Read/Post Comments (5) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 20, 2011, at 10:42 PM, skypilot2005 wrote:

    Sinch,

    I apologize in advance if this is too far off topic. But, I am doing some research tonight and ran across this piece from 1973:

    Gold tops $100 to set record high

    Chicago Tribune

    May 15, 1973

    “Gold leaped to the highest prices in history on European free markets today, surpassing the $100-an-ounce mark for the first time while the dollar dropped under heavy selling pressure.”

    Of course, I am not implying there is an inverse relationship between the value of the dollar and price of gold....

    :)

    Sky Pilot

  • Report this Comment On September 20, 2011, at 10:44 PM, skypilot2005 wrote:

    http://www.bloomberg.com/news/2011-09-19/gold-price-may-reac...

    Gold Price May Reach $2,300 in 2012, Newmont’s O’Brien Says

  • Report this Comment On September 20, 2011, at 10:47 PM, skypilot2005 wrote:

    http://www.theglobeandmail.com/report-on-business/industry-n...

    Gold miners seek to close the gap with bullion

    “Executives believe that the price of gold will continue to rise and that equities will soon catch up and could even surpass physical gold in returns to investors.”

    Sky Pilot

    Official Web Link Assistant to Sinch

  • Report this Comment On September 20, 2011, at 11:16 PM, SN3165 wrote:

    The choice is up to investors... buy the ETFs... hoard physical... or invest in the stocks that pay dividends (Franco Nevada pays one monthly). Fundamentals!

  • Report this Comment On September 22, 2011, at 8:55 AM, Jbay76 wrote:

    I must say, when I read their press release two days ago, I was shocked. I never thought HL would be a dividend centric company. Granted the dividend will range between 0.01 and 0.04 per share per quarter based on the table released, but still. After all they have gone through this year with the Lucky Friday mine collapse and the litigation, this was the last thing I expected to hear. These are good surprises that will act as the cherry on the sundae of capital appreciation!

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