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How to Collect 'Golden Income Checks'
Posted by: taipanpublishing (IP Logged)
Date: March 6, 2013 05:16PM
For income investors, it has always been tough to find a way to invest in gold.
Gold bullion doesn't pay you any income. And gold mining stocks have never been great dividend-paying companies.
Big names in the gold mining sector such Barrick Gold Corp. (ABX) and Goldcorp Inc. (GG) have averaged dividend yields of just 1% -- about a quarter of what the dividend-friendly utilities sector has yielded. And many others haven't even paid that much.
But that's changing. In fact, as I'll show you today, we could be entering a new era of "golden income checks" from some of the world's biggest gold mining stocks.
And that's a BIG opportunity if you are an income investor and also long-term bullish on gold, like me.
The short-term price movement for gold and gold mining stocks has been miserable of late. The gold price has dropped 12% over the last four months. And gold miners have been even worse hit. The Market Vectors Gold Miners ETF (GDX) is down 33% over the same time.
This is a rare opportunity for income investors. That's because gold mining stocks' prices are falling just as their dividend payments have been rising.
And one company is leading the charge toward higher dividend payouts. In April 2011 gold producer Newmont Mining Corp. (NEM) announced it would start paying its dividend based on the price of gold.
Newmont has since refined this policy. Last July, it announced it would link its dividend payout to the average gold spot price for the preceding quarter. This has led the company to hike its first quarter dividend by 21% this year compared to the same quarter last year, based on an average gold price for the fourth quarter of $1,718/oz.
This makes Newmont one of the highest yielding mining companies in the world. The stock now yields 4.4% -- or almost double the S&P 500 average of 2.5% and well over double the puny 1.8% yield on the 10-year Treasury note.
Newmont has proven and probable reserves of 99 million ounces of gold in the ground. So even with gold selling for $1,000/oz, Newmont would still be netting over $300 per ounce, plenty to continue paying its dividends going forward.
Of course, gold prices could continue to fall. And this would affect Newmont's dividend payments. But even if gold falls another $100 (not likely, but certainly possible) Newmont's dividend yield would still be above 3% -- triple the historical rate for gold miners.
As my colleague Chris Hunter has written about, despite recent price falls, the fundamentals are still supportive of gold.
Thirty-eight countries around the world are pursuing a zero or negative real interest rate policy. And many of the world's major developed central banks -- including the Fed, the European Central Bank, the Bank of Japan and the Bank of England -- are pursing a policy of limitless money printing.
Gold hasn't been responding to this inflation threat of late. But over time, you can expect the world's only "honest currency" to perform well in a time of widespread currency debasement. And that means that beaten-down gold mining stocks such as Newmont should benefit.
So not only is Newmont's 4.4% dividend yield extremely attractive, but also adding some exposure to gold in your portfolio is a prudent protection against future inflationary cycles.
I recommend you take advantage of the correction in prices to buy shares in Newmont Mining and lock in some "golden income checks." This opportunity won't be around forever.
Stocks Discussed: NEM, GG, ABX,
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