The silver mining industry isn't a welcoming place for income investors. That's because mines cost vast sums of money to develop, which often leads miners to divert all their cash flow toward capital expenditures, especially when metal prices are lower. As a result, many of these companies don't even bother paying a dividend, while most that do often only offer a paltry payout to investors.

That said, there is one silver mining dividend that rises to the top of the heap:

Silver Mining Stock

Dividend Yield

Tahoe Resources (NYSE:TAHO)

2.92%

Wheaton Precious Metals (NYSE:WPM)

1.30%

Agnico Eagle Mines (NYSE:AEM)

0.86%

Goldcorp

0.61%

Pan American Silver

0.46%

Hecla Mining (NYSE:HL)

0.19%

Data source: YCharts. Dividend yield as of June 20, 2017.

As the table shows, Tahoe Resources currently pays double the rate of its closest peer and obliterates the average yield of the rest of its competitors. Here's a closer look at why its payout shines brightly in a sector not known for dividends.

A minder holding up silver.

Image source: Getty Images

Cheap cash flow

One of the reasons Tahoe Resources has the highest dividend yield in the group is because its stock has hit a rough patch. Over the past three years, the stock is down nearly 70% against a 16% decline in the price of silver. Contrast this with Agnico Eagle Mines and Hecla Mining, which are up 25% and 55%, respectively, over the past three years. Several factors are driving this underperformance, including Tahoe's recent acquisition binge, high production costs, and troubles in its key geography of Guatemala

That said, one outcome of that underperformance is that Tahoe Resources' stock is cheaper than most rivals on a relative basis. For example, Tahoe Resource trades at just nine times cash flow from operations per share, while Wheaton Precious Metals trades at nearly 15 times cash flow and Agnico Eagle Mines sells for almost 13 times cash flow. To put that value difference into perspective, if Tahoe Resources traded between those two at 14 times cash flow, its dividend yield would fall to 1.75%.

Digging into the policy differences

Another major reason why Tahoe Resources' dividend yield is so much higher than its rivals' is its payout policy. The company currently pays a fixed dividend of $0.02 per share each month, or $0.24 per share on an annual basis. As a result of that policy, the dividend remains consistent even if cash flow does not. But with cash flow setting a record $0.43 per share last quarter, and a cash-rich balance sheet, the company isn't currently having any issues covering its dividend.

Contrast that policy with Wheaton Precious Metals, which pays dividends equal to 20% of the cash generated from operating activities in the prior four quarters, which it divides across its outstanding shares and rounds up to the nearest cent. As a result of that variable payout policy, Wheaton Precious Metals' last quarterly dividend was $0.07 per share. However, it has been as high as $0.14 per share and as low as $0.03 per share in recent years due to fluctuations in its cash flow.

Hecla Mining, likewise, has a variable payout policy, which it bases on the price of silver in the preceding quarter. The company plans to pay a minimum annual dividend of $0.01 per share until silver reaches $30 per ounce. After that, it pays an additional $0.01 per share each quarter for every $5-per-ounce increase in the price of silver. That said, with silver roughly 50% below that threshold at the moment, investors are currently only collecting the minuscule minimum payout.

Investor takeaway

Two factors drive Tahoe Resources to the head of the class as the best dividend payer in the silver mining industry. First, its stock is dirt cheap compared to its peers, which compresses its price and boosts the yield. Second, it has a pro-dividend policy by paying a high fixed rate in a sector where many of its peers pay low variable rates. Add those two factors together, and Tahoe Resources currently provides income-seeking investors with a compelling yield from a sector not known for being very dividend-friendly.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.