Saturday, April 09, 2011

Dividend Based on the Price of Gold

Here is an interesting inflation hedge for income investors. Newmont Mining Corporation (NEM) is planning its dividend payments based on the average sales price for gold. The expected payment date based on this formula is June 29, 2011. According to the company:
"The annual payout will increase at a rate of $0.20 per share for each $100 per ounce rise in the average realized gold price. At the current gold price of approximately $1,450 per ounce (i.e. between $1,400 - $1,499 per ounce), Newmont's annual dividend would be $1.00 per share. Subject to Board approval, the first quarterly dividend under this policy is expected to be payable on June 29, 2011 to shareholders of record on June 16, 2011."

The company believes that by 2017, it can produce 7 million ounces of attributable annual gold production, and that based on today's prices of precious metals, it can achieve internal rates of return in excess of 20%. At the end of last year, the company has $5 billion in cash and marketable securities. This was prior to the purchase of Fronteer for $2 billion. The stock trades at 12.75 times forward earnings and is currently generating a yield of 1.0%.

Newmont isn't the only gold mining company that generates a yield. There are plenty of others, according to the list of gold mining dividend stocks at, with yields as high as 6%.

One example is Freeport-McMoRan Copper & Gold Inc. (FCX), which yields 1.7%, payable quarterly. The company, which mines for copper, gold, molybdenum, silver, and cobalt, trades at 9 times forward earnings.

Another is ASA Limited (ASA), which is an investment trust that invests in stocks of companies engaged in the exploration, mining or processing of gold, silver, platinum, and diamonds. It sports a price to earnings ratio of 7 and a yield of 2.0%.

For a list of all the dividend paying gold mining companies, which can be downloaded, sorted, and updated, go to

Disclosure: Author didn't own any of the above at the time the article was written.


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