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Arie Goren, Portfolio123 (475 clicks)
Long only, value, research analyst, dividend investing
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The gold industry has been the second-worst performer so far in 2013 (the worst has been the silver industry), the total return year to date (04/19/2013) was negative at -37%, while the appreciation of the Russell 3000 index in the same period was at 9.72%. Nevertheless, there are profitable companies that pay rich dividends among the gold mining companies, and when the gold price rise resumes, a nice capital gain could be expected.

I have searched for very profitable gold mining companies that pay rich dividends, and that have raised their payouts significantly each year. Those stocks would have to show stable financial conditions and a low debt-to-equity ratio.

I have elaborated a screening method, which shows stock candidates following these lines. Nonetheless, the screening method should only serve as a basis for further research. All the data for this article were taken from Yahoo Finance and finviz.com.

The screen's formula requires all stocks to comply with all following demands:

  1. Dividend yield is greater than 5.0%.
  2. The annual rate of dividend growth over the past years is greater than 15%.
  3. Trailing P/E is less than 16.
  4. Forward P/E is less than 8.
  5. Debt to equity is less than 0.50.

After running this screen on April 20, 2013, I discovered the following three stocks:

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*GORO average annual dividend growth - only 2.7 years, since it started paying dividends.

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Gold Resource Corp (GORO)

Gold Resource Corporation engages in the exploration for and production of gold and silver in Mexico.

Gold Resource has no debt at all, and it has a trailing P/E of 15.85 and a very low forward P/E of 7.80. The forward annual dividend yield is very high at 7.57%, and the payout ratio is at 113%. The annual rate of dividend growth over the past 2.7 years was very high at 29.8%.

The GORO stock is trading 65% below its 52-week high, and has 89% upside potential based on the consensus mean target price of $18.00

On April 16, Gold Resource reported its first quarter production and maintained 2013 production outlook. The Company produced approximately 22,300 ounces gold equivalent during the first quarter of 2013 and maintained its outlook for the full year at 80,000-100,000 ounces gold equivalent.

In the report, Gold Resource Corporation's President, Jason Reid, stated:

We are pleased with production results which were in line with our targets. Mine development advanced well, exploration during the quarter further defined new mineralized areas outside of the Baja/Arista veins in the Arista Deposit, including Splay #5, and the Company acquired new prospective land concessions, further consolidating our North 70 West mineralized structural corridor.

The compelling valuation metrics, the 89% upside potential based on the consensus mean target price of $18.00, the rich dividend and the fact that the company consistently has raised dividend payments are all factors that make GORO stock quite attractive.

GORO Dividend Chart

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Chart: finviz.com

IAMGOLD Corp. (IAG)

IAMGOLD Corporation engages in the exploration, development, and operation of mining properties. Its products include gold, silver, niobium, and copper deposits.

IAMGOLD has a very low debt (total debt to equity is only 0.17) and it has a very low trailing P/E of 5.47 and a very low forward P/E of 5.66. The average annual earnings growth estimates for the next 5 years is at 3%. The forward annual dividend yield is very high at 5.13%, and the payout ratio is only 28 %. The annual rate of dividend growth over the past five years was very high at 15.8%.

The IAG stock is trading 71% below its 52-week high, and has 135% upside potential based on the consensus mean target price of $11.46.

On February 20, IAMGOLD reported its fourth-quarter and full year 2012 financial results, which missed EPS expectations by $0.01 and beat on revenues.

In the report, the company said:

Revenues of $1.7 billion for 2012 were virtually flat with the prior year, as margins rose slightly to $952 an ounce. Net earnings from continuing operations attributable to equity holders were $334.7 million ($0.89 per share) in 2012 compared to $391.3 million ($1.04 per share) in 2011. Excluding items not indicative of underlying operating performance, adjusted net earnings attributable to equity holders were $316.9 million ($0.84 per share) compared to $405.7 million ($1.08 per share) in 2011. The year-over-year earnings decline is the result of lower gold production and higher operating costs and increased exploration expenses, partly offset by higher gold prices. Operating cash flow before changes in working capital was $504.0 million ($1.34 per share) compared to $656.7 million ($1.75 per share) in the previous year.

All these factors -- the very low multiples, the rich dividend, the fact that the company consistently has raised dividend payments and the fact that the stock is trading way below book value (price-to-book value is only 0.49) -- make IAG stock quite attractive.

IAG Dividend Chart

IAG Dividend data by YCharts

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Chart: finviz.com

Newmont Mining Corporation (NEM)

Newmont Mining Corporation, together with its subsidiaries, engages in the acquisition, exploration, and production of gold and copper properties.

Newmont Mining has a low debt (total debt to equity is only 0.46) and it has a very low trailing P/E of 9.09 and even a lower forward P/E of 7.48. The forward annual dividend yield is very high at 5.15%, and the payout ratio is only 39 %. The annual rate of dividend growth over the past five years was very high at 33.4%.

The NEM stock is trading 42% below its 52-week high, and has 55% upside potential based on the consensus mean target price of $51.20.

Newmont Mining will report its latest quarterly financial results on April 29. NEM is expected to post a profit of $0.84 a share, a 27% decline from the company's actual earnings for the same quarter a year ago. The reported results will probably affect the stock price in the short term.

The cheap valuation metrics, the 55% upside potential based on the consensus mean target price of $51.20, the rich dividend and the fact that the company consistently has raised dividend payments are all factors that make NEM stock quite attractive.

NEM Dividend Chart

NEM Dividend data by YCharts

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Chart: finviz.com

GORO Dividend data by YCharts

Source: 3 High-Yielding Gold Mining Stocks That Have Increased Dividends By At Least 15% A Year For 2 Or More Years