Dividend payers deserve a berth in any long-term stock portfolio. But seemingly attractive dividend yields are not always as fetching as they may appear. Let's see which companies in the gold industry offer the most promising dividends.

Yields and growth rates and payout ratios, oh my!
Before we get to those companies, though, you should understand just why you'd want to own dividend payers. These stocks can contribute a huge chunk of growth to your portfolio in good times, and bolster it during market downturns.

As my colleague Matt Koppenheffer has noted: "Between 2000 and 2009, the average dividend-adjusted return on stocks with market caps above $5 billion and a trailing yield of 2.5% or better was a whopping 114%. Compare that to a 19% drop for the S&P 500."

When hunting for promising dividend payers, unsophisticated investors will often just look for the highest yields they can find. While these stocks will indeed pay out the most, the yield figures apply only for the current year. Extremely steep dividend yields can be precarious, and even solid ones are vulnerable to dividend cuts.

When evaluating a company's attractiveness in terms of its dividend, it's important to examine at least three factors:

  1. The current yield
  2. The dividend growth
  3. The payout ratio

If a company has a middling dividend yield, but a history of increasing its payment substantially from year to year, it deserves extra consideration. A $3 dividend can become $7.80 in 10 years, if it grows at 10% annually. (It will top $20 after 20 years.) Thus, a 3% yield today may be more attractive than a 4% one, if the 3% company is rapidly increasing that dividend.

Next, consider the company's payout ratio, which reflects what percentage of income the company is spending on its dividend. In general, the lower the number, the better. A low payout ratio means there's plenty of room for generous dividend increases. It also means that much of the company's income remains in its hands, giving it a lot of flexibility. That money can fund the business's expansion, pay off debt, buy back shares, or even buy other companies. A steep payout ratio reflects little flexibility for the company, less room for dividend growth, and a stronger chance that if the company falls on hard times, it will have to reduce its dividend.

Peering into gold
Below, I've compiled some of the major dividend-paying players in the gold industry (and a few smaller outfits), ranked according to their dividend yields:


Recent Yield

5-Year Avg. Annual Div. Growth Rate

Payout Ratio

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Compania de Minas Buenaventura (NYSE: BVN) 1.5% 11.3% 15% Add
Newmont Mining 1.5% 7.5% 12% Add
Gold Fields 1.2% (8.8%) 796% Add
Barrick Gold 1.0% 17.4% 16% Add
Yamana Gold (NYSE: AUY) 1.0% 31.6%* 14% Add
Agnico-Eagle Mines (NYSE: AEM) 1.0% 45.9% 8% Add
Goldcorp (NYSE: GG) 0.9% 3.5% 9% Add
Kinross Gold 0.7% 7.7%** 10% Add
Eldorado Gold (NYSE: EGO) 0.6% New dividend 13% Add
AngloGold Ashanti 0.5% (31.3%) 92% Add

Data: Motley Fool CAPS. *Past four years. **Past three years.

If you focus on the dividend growth rate alone, you might end up with Agnico-Eagle Mines, but there's no guarantee that its steep rate will continue. A closer look reveals that the payout has fluctuated considerably, quadrupling between 1994 and 1995 and then falling by 80%, and then later quadrupling again and recently getting trimmed a bit.

You may notice, too, that some names of interest in the industry, such as Rubicon Minerals (AMEX: RBY) and Northern Dynasty Minerals (AMEX: NAK), aren't on the list. With mining activity having ramped up because of high precious-metals prices, small companies are focusing on growth, plowing extra cash into operations rather than paying it out to shareholders.

Just right
As I see it, among the companies above, Buenaventura gives you the best combination for a dividend stock, offering some income now and a good chance of strong dividend growth in the future. But all of the stocks above could raise their dividends sharply as long as gold prices stay high.

Of course, as with all stocks, you'll want to look into more than just a company's dividend situation before making a purchase decision. You'll want to think about whether gold is a promising investment, as well. At least one of my colleagues believes it's wildly overvalued.

Stocks with compelling dividends are great places to start your search, particularly if you're excited by the prospects for their industry.

Do your portfolio a favor. Don't ignore the growth you can gain from powerful dividend payers.

To get more ideas for great dividend-paying stocks, read about "13 High-Yielding Stocks to Buy Today."

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.