Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
The Major Advantages Of Getting Your PhD Online - 12th Apr 21
Covid-19 Pandemic Current State for UK, US, Europe, Brazil Vaccinations vs Lockdown's Third Wave - 12th Apr 21
Why These Stock Market Indicators Should Grab Your Full Attention - 12th Apr 21
Rising Debt Means a Weaker US Dollar - 12th Apr 21
Another Gold Stocks Upleg - 12th Apr 21
AMD The ZEN Tech Stock - 12th Apr 21
Overclockers UK Build Quality - Why Glue Fan to CPU Heat sink Instead of Using Supplied Clips? - 12th Apr 21 -
What are the Key Capabilities You Should Look for in Fleet Management Software? - 12th Apr 21
What Is Bitcoin Gold? - 12th Apr 21
UK Covd-19 FREE Lateral Flow Self Testing Kits How Use for the First Time at Home - 10th Apr 21
NVIDIA Stock ARMED and Dangeorus! - 10th Apr 21
The History of Bitcoin Hard Forks - 10th Apr 21
Gold Mining Stocks: A House Built on Shaky Ground - 9th Apr 21
Stock Market On the Verge of a Pullback - 9th Apr 21
What Is Bitcoin Unlimited? - 9th Apr 21
Most Money Managers Gamble With Your Money - 9th Apr 21
Top 5 Evolving Trends For Mobile Casinos - 9th Apr 21
Top 5 AI Tech Stocks Investing 2021 Analysis - 8th Apr 21
Dow Stock Market Trend Forecast 2021 - Crash or Continuing Bull Run? - 8th Apr 21
Don’t Be Fooled by the Stock Market Rally - 8th Apr 21
Gold and Latin: Twin Pillars of Western Rejuvenation - 8th Apr 21
Stronger US Dollar Reacts To Global Market Concerns – Which ETFs Will Benefit? Part II - 8th Apr 21
You're invited: Spot the Next BIG Move in Oil, Gas, Energy ETFs - 8th Apr 21
Ladies and Gentlemen, Mr US Dollar is Back - 8th Apr 21
Stock Market New S&P 500 Highs or Metals Rising? - 8th Apr 21
Microsoft AI Azure Cloud Computing Driving Tech Giant Profits - 7th Apr 21
Amazon Tech Stock PRIMEDAY SALE- 7th Apr 21
The US has Metals Problem - Lithium, Graphite, Copper, Nickel Supplies - 7th Apr 21
Yes, the Fed Will Cover Biden’s $4 Trillion Deficit - 7th Apr 21
S&P 500 Fireworks and Gold Going Stronger - 7th Apr 21
Stock Market Perceived Vs. Actual Risks: The Key To Success - 7th Apr 21
Investing in Google Deep Mind AI 2021 (Alphabet) - 6th Apr 21
Which ETFs Will Benefit As A Stronger US Dollar Reacts To Global Market Concerns - 6th Apr 21
Staying Out of the Red: Financial Tips for Kent Homeowners - 6th Apr 21
Stock Market Pushing Higher - 6th Apr 21
Inflation Fears Rise on Biden’s $3.9 TRILLION in Deficit Spending - 6th Apr 21
Editing and Rendering Videos Whilst Background Crypto Mining Bitcoins with NiceHash, Davinci Resolve - 5th Apr 21
Why the Financial Gurus Are WRONG About Gold - 5th Apr 21
Will Biden’s Infrastructure Plan Rebuild Gold? - 5th Apr 21
Stocks All Time Highs and Gold Double Bottom - 5th Apr 21
All Tech Stocks Revolve Around This Disruptor - 5th Apr 21
Silver $100 Price Ahead - 4th Apr 21
Is Astra Zeneca Vaccine Safe? Risk of Blood Clots and What Side Effects During 8 Days After Jab - 4th Apr 21
Are Premium Bonds A Good Investment in 2021 vs Savings, AI Stocks and Housing Alternatives - 4th Apr 21
Penny Stocks Hit $2 Trillion - The Real Story Behind This "Road to Riches" Scheme - 4th Apr 21
Should Stock Markets Fear Inflation or Deflation? - 4th Apr 21
Dow Stock Market Trend Forecast 2021 - 3rd Apr 21
Gold Price Just Can’t Seem to Breakout - 3rd Apr 21
Stocks, Gold and the Troubling Yields - 3rd Apr 21
What can you buy with cryptocurrencies?- 3rd Apr 21
What a Long and Not so Strange Trip it’s Been for the Gold Mining Stocks - 2nd Apr 21
WD My Book DUO 28tb Unboxing - What Drives Inside the Enclosure, Reds or Blues Review - 2nd Apr 21
Markets, Mayhem and Elliott Waves - 2nd Apr 21
Gold And US Dollar Hegemony - 2nd Apr 21
What Biden’s Big Infrastructure Push Means for Silver Price - 2nd Apr 21
Stock Market Support Near $14,358 On Transportation Index Suggests Rally Will Continue - 2nd Apr 21
Crypto Mine Bitcoin With Your Gaming PC - How Much Profit after 3 Weeks with NiceHash, RTX 3080 GPU - 2nd Apr 21
UK Lockdowns Ending As Europe Continues to Die, Sweet Child O' Mine 2021 Post Pandemic Hope - 2nd Apr 21
A Climbing USDX Means Gold Investors Should Care - 1st Apr 21
How To Spot Market Boom and Bust Cycles - 1st Apr 21
What Could Slay the Stock & Gold Bulls - 1st Apr 21
Precious Metals Mining Stocks Setting Up For A Breakout Rally – Wait For Confirmation - 1st Apr 21
Fed: “We’re Not Going to Take This Punchbowl Away” - 1st Apr 21
Mining Bitcoin On My Desktop PC For 3 Weeks - How Much Crypto Profit Using RTX 3080 on NiceHash - 31st Mar 21
INFLATION - Wage Slaves vs Gold Owners - 31st Mar 21
Why It‘s Reasonable to Be Bullish Stocks and Gold - 31st Mar 21
How To Be Eligible For An E-Transfer Payday Loan? - 31st Mar 21
eXcentral Review – Trade CFDs with a Customer-Centric Broker - 31st Mar 21

Market Oracle FREE Newsletter

FIRST ACCESS to Nadeem Walayat’s Analysis and Trend Forecasts

Will Dividends Make Mining Shares Glitter More Than Gold?

Commodities / Gold & Silver Stocks Nov 20, 2011 - 06:47 AM GMT

By: Julian_DW_Phillips

Commodities Best Financial Markets Analysis ArticleOf late we've seen clever moves by some precious metals mining companies to link the dividends they pay to the income they achieve on a quarterly basis. These include Silver Wheaton, Newmont, Hecla - no doubt to be followed by many more. Why have they decided to do this? The answer goes back to why we invest in the first place. We do so to make money to provide income and capital in the future. To do this we must maximize our total returns from those investments. Investments therefore must be money-making machines, not just good miners or growing companies.


From Summer to Winter

It is generally hoped that if a mining company is growing, its share price will grow with it. Like a flower in the garden, it must have adequate rain, good soil, protection, and plenty of sunshine. This happens in spring and summer. Now take away some of these ingredients as the season changes to autumn and winter; the plant may be just as good as before, but the conditions it needs to thrive are just not there and it won't produce the blooms when the gardener wants. What's more, the gardener will not sympathize with the plant hoping for conditions to improve. He will dig up that plant and throw it away and replace it if it doesn't perform, with one that will blossom in such conditions. The same is happening in the investment world today as the glorious days of summer from 1985 changed to winter in 2007.

In the last few years, financial conditions have seen growth disappear and rising costs squeeze the profits of all corporations in the first world. In the precious metals world, the same is happening to mining companies, but the precious metal prices are rising and combatting these cost pressures, giving profits as never before. But during these times, precious metal share prices have not performed nearly as well as expected. Yes, there are many reasons why this is so, but one is that shareholders have seen little return for their investment, particularly from those miners who did not have a credible dividend policy. They hoped their shareholders would tolerate this because of the capital growth that should come with increased profits. But share prices in all sectors have shown a poor performance generally.

Capital gains in mining companies are proving insufficient, set against an uncertain, unstable, economic and financial backdrop. The days of earnings don't count or dividends are not necessary have gone. The investor wants to see hard cash in his hand as a reward for investing in that company. He wants to be paid for the heightened risks he is suffering and he wants his investments to reward him long term. No longer satisfied with hopes and dreams of huge capital gains, he's fully aware that management must turn to servicing shareholders on a definite basis. He wants to be sure that that income will grow. He will pay more by way of price to get a fair cash flow reflecting the rising profits of the company. He wants to be able to measure the shares that will do well in winter because in summer they will blossom even better. If a share value and cash flow can grow in winter then summer will bring just profits; however, when winter saps these, summer will barely cover the losses. It's good policy to see capital be preserved or grow in winter, so that in summer they have a far stronger base on which to reach full blossom.

Let's face it, when a financial winter sets in investors want less risk but a secure income. Capital gain is dispensed with in favor of certain capital preservation. Hence when yields rise (say, due to interest rate rises) the only place to be is cash whose value is not supposed to fall. Once interest rates have peaked, fixed interest securities offer the best place to be, as growth splutters into life. Then a switch from Fixed interest securities to equities as spring arrives. But what if you can find a share that is inherently growing its present and future cash flow and providing a stream of dividends that outperforms cash. Then fixed interest securities as the hoped for but unlikely spring arrives? The total returns in winter will have given a portfolio growth that has broadened the base and will give excellent returns when the weather is better. The investment or portfolio manager that can achieve that will be at the front of the pack.

Mining Share Dividends Set to Grow on a Committed Basis

We've been writing about this aspect of share requirements for a couple of years now and are delighted to see precious metal mining companies have got the message and are returning to paying fair dividends. A trend is growing among precious metal miners - there is a solid commitment to pay a defined percentage of their cash flow by way of dividends.

With precious metal shares, the risks are greater than with the broad market equities. A share like Wal-Mart is a long-term retailer, which if properly managed will be here for generations. But a mining share relies on the time it takes to produce metals from the proven reserves. It's a wasting asset. This can be lessened if it's in a position to replace or increase the used up reserves. This depends on successful exploration or the proving of known and unknown resources. The first is a function of management and expenditure; the second relies on expenditure in proving resources.

If during the life of the mine and its reserves, the company does not reward shareholders directly, shareholders have to rely on future shareholders to pay the market price for those shares to existing shareholders, to make any profit or return. If as we see now, future market expectations are lessened, for a multitude of reasons, outside the control of company management, then such investments simply fail to perform. With the rising commitment to pay a set percentage of cash flow to shareholders on a quarterly basis, risks and values become more defined and measureable. Direct comparisons to fixed interest performance by such companies are more certain. Where growth of dividends is believed to be certain, then rising dividends will allow for capital gains to be justified on the basis of income comparisons. Shareholders will be able to buy into those shares and be able to justify the purchase to even the most jaundiced of investment committees.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2011 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules