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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 (05/10/2013) was negative at -33.7%, while the appreciation of the Russell 3000 index in the same period was at 15.63%. Nevertheless, there are cheap stocks trading way below book value 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 gold companies trading below book value that pay rich dividends and that have raised their payouts at a very high rate for the last five years. Companies that regularly increase dividends are generally more reliable. Increasing dividends is the assurance that dividend income retains its purchasing power over time.

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 of the following demands:

  1. The dividend yield is greater than 2.90%.
  2. The dividend yield is greater than the five year average dividend yield.
  3. The annual rate of dividend growth over the past five years is greater than 14%.
  4. Forward P/E is less than 9.
  5. The price to book value is less than 1.0.

After running this screen on May 11, 2013, I discovered the following three stocks:

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IAMGOLD Corp. (NYSE: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 an extremely low trailing P/E of 6.38 and a very low forward P/E of 7.89. The current ratio is very high at 3.76, and the average annual earnings growth estimates for the next five years is at 3%. The price to book value is very low at 0.57, and the price-to-sales ratio is at 1.28. The annual dividend yield is very high at 4.40%, and the payout ratio is only 28 %. The annual rate of dividend growth over the past five years was very high at 33.03%.

The IAG stock is trading 66% below its 52-week high, and has 81% upside potential based on the consensus mean target price of $10.28.

On May 07, IAMGOLD reported its first quarter 2013 financial results.

First quarter 2013 highlights

  • Attributable gold production of 188,000 ounces, with attributable sales of 171,000 ounces.
  • Total cash costs of $787 an ounce, $63 below the bottom of guidance.
  • Adjusted net earnings1 attributable to equity holders of $57.7 million, or $0.15 a share.
  • Reported net earnings attributable to equity holders of $10.9 million, or $0.03 a share, inclusive of $27.4 million impairment of investments (at market value).
  • Revenues of $305.3 million.
  • Operating cash flow before changes in working capital1 of $115.2 million, or $0.31 a share.
  • Quarter-end cash, cash equivalents and gold bullion (at market value) of $863.3 million.
  • Westwood begins production.
  • Launched $100 million cost reduction program.
  • Rosebel Definitive Agreement approved by National Assembly of Suriname on April 13, 2013.
  • 2013 consolidated total all-in sustaining cost guidance: $1,200-$1,300 an ounce.

In the report, Steve Letwin, President and CEO said:

With the initiation of our $100 million cost reduction program before the drop in gold prices and our history of disciplined capital allocation, IAMGOLD was well ahead of the curve in responding to the challenges in our industry. We are very encouraged with cash costs coming in at $787 an ounce, $63 below the bottom of our guidance, and we will revisit our cost guidance in the second quarter. At the same time, our continued focus on maintaining a strong balance sheet gives us the option of deferring capital expenditures apart from what is essential to sustaining the current operations. We will move forward only with expansion and development projects that meet our criteria for delivering attractive returns. The traction we are making on the cost front together with our renewed commitment to capital discipline points to a positive outlook ahead.

All these factors -- the very low multiples, the rich dividend, the fact that the company consistently has raised dividend payments, the fact that the stock is trading way below book value, and the 81% upside potential based on the consensus mean target price of $10.28 -- make IAG stock quite attractive.

IAG Dividend Chart

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Chart: finviz.com

Barrick Gold Corporation (NYSE:ABX)

Barrick Gold Corporation engages in the production and sale of gold and copper. It is also involved in exploration and mine development activities.

Barrick Gold has a relatively low debt (total debt to equity is 0.66) and has a very low forward P/E of 5.95. The price to book value is very low at 0.93, and the price-to-sales ratio is at 1.46. The average annual earnings growth estimates for the next five years is at 5.29%. The forward annual dividend yield is quite high at 3.83%, and the annual rate of dividend growth over the past five years was very high at 15.71%.

The ABX stock is trading 51% below its 52-week high, and has 50% upside potential based on the consensus mean target price of $31.46.

On April 24, Barrick Gold reported its first quarter 2013 financial results.

First quarter 2013 highlights

  • Adjusted net earnings of $923 million ($0.92 per share).
  • Operating cash flow of $1.09 billion.
  • Adjusted operating cash flow of $1.16 billion.

In the report, Jamie Sokalsky, Barrick's President and CEO said:

Our high quality portfolio of mines combined with our sharp focus on cost management has translated into strong quarterly financial and operating results. It is very rewarding to see that our cost reduction efforts have begun to take effect and are reflected in low all-in sustaining costs of $919 per ounce and total cash costs of only $561 per ounce this quarter. We have also further reduced total capex, exploration and all-in sustaining cost guidance for the full year.

The very low multiples, the rich dividend, the fact that the company consistently has raised dividend payments, the fact that the stock is trading way below book value, and the 50% upside potential based on the consensus mean target price of $31.46, are all factors that make ABX stock quite attractive.

ABX Dividend Chart

ABX Dividend data by YCharts

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Chart: finviz.com

Kinross Gold Corporation (NYSE:KGC)

Kinross Gold Corporation, together with its subsidiaries, engages in mining and processing gold and silver ores.

Kinross Gold has a very low debt (total debt to equity is only 0.27) and it has a very low forward P/E of 8.43. The current ratio is quite high at 2.76, and the average annual earnings growth estimates for the next five years is at 6%. The price to book value is very low at 0.63, and the price-to-sales ratio is at 1.45. The annual dividend yield is at 2.92%, and the annual rate of dividend growth over the past five years was very high at 14.87%.

The KGC stock is trading 50.6% below its 52-week high, and has 75% upside potential based on the consensus mean target price of $9.60.

On May 07, Kinross Gold reported its first quarter 2013 financial results, which beat EPS expectations by $0.01 and beat on revenues.

In the report, J. Paul Rollinson, CEO commented in relation to first-quarter 2013 results:

Our continued focus on operational fundamentals contributed to solid results in the first quarter, as production was higher and cost of sales per ounce was lower than the same period last year. We are on target to meet our annual guidance for production and cost of sales at each of our regions, and company-wide. We continue to focus on margin and cash flow, versus production at any cost, in our mine planning and production decisions. At the same time, we continue to pursue opportunities to reduce capital spending and operating costs across our operations.

All these factors -- the very low multiples, the solid dividend, the fact that the company consistently has raised dividend payments, the fact that the stock is trading way below book value, and the 75% upside potential based on the consensus mean target price of $9.60 -- make KGC stock quite attractive.

KGC Dividend Chart

KGC Dividend data by YCharts

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Chart: finviz.com

IAG Dividend data by YCharts

Source: 3 Good-Yielding Gold Stocks Trading Way Below Book Value