The 4 Best Dividend Stocks in Silver

Silver stocks aren't as popular as gold stocks among dividend investors, which isn't really surprising given that a greater number of precious metal companies deal primarily in gold and most gold stocks pay a dividend. Comparatively, only a handful of the few silver stocks offer dividends today. But that may also mean that silver dividend stocks are flying under the radar while investors are showering all the attention on gold dividends.

As a metal, silver is primarily used for industrial purposes, especially in electronics and photovoltaic (solar) energy, and that makes its growth prospects more intriguing than that of gold, which is mainly preferred in the form of jewelry worldwide. In other words, you can't possibly go wrong investing in a silver dividend stock today. Hecla Mining (HL +1.98%), Pan American Silver Corp. (PAAS +1.97%), Tahoe Resources (NYSE: TAHO), and Wheaton Precious Metals (NYSE: WPM) are among the four top dividend-paying silver stocks today. 

Some silver stocks offer good dividends. Image source: Getty Images.

To help you choose the best of the lot, here's a sneak peek into the background and dividend growth potential of each stock.

Hecla Mining: Not for ambitious dividend investors

Hecla Mining started paying a dividend in 2011 after adopting a dividend policy under which it pays based on its average realized prices for silver during the preceding quarter, with a minimum quarterly dividend set at $0.0025, or  $0.01 per share annually.

But there's a catch: Hecla has also set a minimum average realized silver price threshold of $30 per ounce below which it will pay its minimum dividend and not a price-linked dividend. In other words, Hecla's dividends have little to do with its operational performance and will grow only when silver prices rise. Here's what its potential dividend could look like at different silver price points:

Data source: Hecla Mining. Table by author.

The company's dividends haven't crossed the $0.0025 quarterly mark yet. Considering that Hecla realized below $18 per ounce of silver last year and the price of silver has been way off the $30 mark since 2013, income investors can either seek comfort in Hecla's tiny $0.01 dividend and 0.17% dividend yield or consider the following three stocks to get more. Psst, the best is saved for last.

Pan American: Dividends should stabilize

Pan American is among the largest primary silver producers in the world, and has paid a dividend every year since 2010. Its dividends, however, have fluctuated wildly over the years, including a dramatic cut in 2015 when the company needed money for project expansions. 

PAAS Dividend data by YCharts.

Things have improved since, with Pan American even doubling its quarterly dividend to $0.025 per share earlier this year as stronger metal prices and lower costs boosted the company's cash flows.

Going forward, Pan American expects silver production to decline this year but pick up over the next couple of years as ongoing expansion programs such as in Mexico come on line. As production ramps up, its costs will likely come down, too. I believe expanding production and cash flows should help Pan American keep its dividend intact, and even increase it, in the coming years. A dividend yield of 0.6% might be small, but Pan America's dividend has the potential to grow.

Wheaton Precious Metals: Strong business model with good dividends

Wheaton Precious Metals (erstwhile Silver Wheaton) is one of the most popular dividend stocks in silver thanks to its offbeat business of streaming. Unlike the three companies discussed above, Wheaton Precious Metals doesn't own or operate mines but buys metal streams from other miners in exchange for funding them up front to support their capital projects.

This business model not only insulates Wheaton Precious Metals from the costs and risks involved in mining but also allows it to buy metals at prices substantially below spot rates. The result: Wheaton Precious Metals enjoys strong margins and cash flows, allowing it to pay consistent dividends. On the flip side, its dividends can be volatile as it pays a quarterly dividend that equals 20% of its average operating cash flows for the trailing four quarters.

WPM CFO Per Share (TTM) data by YCharts.

Overall, though, investors in Wheaton Precious Metals have a greater chance of getting a dividend every year than those invested in traditional mining stocks. Investors can even track the company's cash flows and predict dividends to some extent. That dividend security, combined with a dividend yield of 1.4%, makes Wheaton Precious Metals one of the best silver dividend stocks to own.

Tahoe: The best high-dividend yield stock in silver

Tahoe was incorporated in 2009, so there's not much of a dividend history to go back to. But you should overlook Tahoe at your own risk: Unlike most gold and silver stocks, Tahoe pays a monthly dividend and hasn't missed a payment since December 2014. It also started a dividend reinvestment plan last year.

Aside from a monthly dividend, two other factors make Tahoe one of the best dividend stocks in the silver industry: a fixed monthly dividend of $0.02 per share unlike peer dividends that fluctuate with net profits or cash flows, and a dividend yield of 2.6%. That dividend yield is, in fact, among the highest in the precious metals industry. For perspective, even a giant gold miner like Barrick Gold currently yields a minuscule 0.7% in dividends.

Tahoe's Escobal Mine is the world's third-largest silver mine. Image source: Tahoe Resources.

As if a fixed annual dividend of $0.24 per share and an above 2% yield weren't good enough, investors can expect Tahoe's dividends to grow even higher in the future That's because aside from owning the world's third-largest silver mine, Escobal in Gautemala, Tahoe is also expanding its gold portfolio rapidly, so much so that by 2019, it expects gold production to grow almost 36% at the midpoint from 2016 levels. That's hugely encouraging and should keep Tahoe investors hopeful of fatter dividend checks going forward.