Most silver miners do not pay dividends nowadays as their cash flows are being pressured by low silver prices. However, there is one notable exception -- Pan American Silver (PAAS -4.35%), which yields a hefty 3.8%. The company recently reported its first-quarter results and reaffirmed its quarterly dividend of $0.125 per share. Will a strong dividend yield continue to support Pan American Silver's shares?

A strong balance sheet provides support for the dividend
Pan American Silver finished the first quarter with $394.4 million of cash and short-term investments on its balance sheet. Notably, the company's long-term debt was just $40 million. This pile of cash provides a sufficient cushion to finance the dividend in the future even if silver prices drift lower. This differentiates Pan American Silver from other companies in the silver mining space that are paying dividends.

For example, streaming company Silver Wheaton's (WPM -2.15%) dividend is tied to its cash flow. As a result, Silver Wheaton's dividend naturally decreases with the decline of silver and gold prices. Of course, this brings sustainability to Silver Wheaton's dividend, but this sustainability comes at a price.

Hecla Mining's (HL -4.71%) dividend situation is interesting. Hecla Mining yields just 0.3%. During the recent earnings call, Hecla Mining's CEO Phil Baker was asked why the company maintains this minuscule yield when it could use this money elsewhere. The answer for this question was that some institutional investors would not be able to invest in Hecla Mining if it chose to eliminate the dividend.

Importantly, Pan American Silver preserved solid operational cash flow despite lower silver prices. The decrease in the all-in sustaining cost per ounce of silver to $15.54 helped the company pull in $36.1 million of cash from operations. Despite this cost decrease, Pan American Silver reiterated its full-year all-in sustaining cost guidance of $17-$18 per ounce. It is likely that the company will be able to hit the low end of its cost guidance, which will enhance its operational cash flow.

Opportunity to fund growth projects internally
The amount of cash on the balance sheet allows Pan American Silver to fund its projects without going to the debt or equity markets. Pan American Silver stated that it was focused on the expansion of its Mexican La Colorada mine. The company stated the project had an all-in cost of about $160 million over the next couple of years. Even if Pan American Silver decided to actively proceed with the La Colorada expansion, it would still have a sufficient cash cushion left on the balance sheet.

Despite its strong dividend yield and stable production growth, Pan American Silver continues to trade at a discount to its book value. Although this is a common case among mining companies' shares nowadays, in Pan American Silver's case it opens the possibility for future upside.

Bottom line
Pan American Silver is a solid choice for the income-oriented investor. The company has low costs, good growth prospects, and lots of cash to maintain the dividend yield. All in all, Pan American Silver is poised for upside unless silver prices dive below the $19 mark.