Friday, October 01, 2010

How to Get 6.5% Investing in Gold

Gold closed at an all time high today at $1318 an ounce, primarily due to concerns about a weaker dollar. Many gold bug fear (or hope) that gold may become the next big bubble, similar to the dot com boom. If that happens, not only will the gold commodity take off but so will the gold and silver mining stocks. Many investors want to jump on the bandwagon, or should I say gold wagon, but are concerned about risk.

One way to reduce risk is by finding a stock that pays a regular dividend, because capital is returned to you on a periodic basis and the income provides some stability to the stock price. has turned up a list of over 20 gold and silver mining stocks that pay dividends, including Freeport-McMoRan Copper & Gold Inc. (FCX) with a yield of 1.4% and Newmont Mining Corporation (NEM) which pays 1.0%.

However, there is one dividend paying gold stock that stands out. Hecla Mining (HL) is a major producer of gold, silver, lead, and zinc. The company, which was founded in 1891, has operations in Idaho and Alaska. But the common stock doesn't pay a dividend.

However, the Hecla Mining Company Preferred B (HL-PB) shares pay 7% of the $50 par value or 87.5 cents each quarter, generating a yield of 6.5% based on the recent price of 53.80. Another benefit, besides the income, is that the shares are convertible into the common shares of Hecla at $15.55 per share. The current price of the stock, at 6.38 is far away from the conversion price, but a continued strong move in gold could send the shares shooting past that level.

The dividends are cumulative, meaning that any missed dividends need to be paid before any dividends are paid on the common stock, and before the shares get called. The cumulation actually took place last year when the company paid $4.375 in December after missing four payments in a row.

You should be aware that the preferred shares are redeemable at the option of Hecla at $50 per share. It would be to the advantage to Hecla to have the common rise enough for the conversion to take place as once the preferred shareholders convert, the company would save over $550,000 each year in non-deductible dividend payments.

There are many other dividend paying gold mining stocks to choose from, including one that pays dividends monthly and has done so since January of 2004. To see a free list of the top yielding gold and silver mining stocks, go to

Disclosure: Author did not own any of the above at the time the article was written.


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