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As a dividend seeking investor, I am always looking for a stock that can give me a really nice dividend while also having a potential for capital appreciation. Newmont Mining (NEM) seems to be a stock within a business segment that has gone through some rough patches of late, and offers a compelling entry price with a sweet dividend.

I have never owned precious metals (aside from silver futures when the Hunt brothers tried to corner the market back in the late 70's), and my own personal opinion is that owning actual gold gives me nothing more than a piece of metal that someone might want to pay a higher price for, at some unknown time in the future. I also do not know enough about the gold stocks or indexes to even bother with them.

NEM offers me an opportunity to actually have a stock that plays in the gold arena, but much like drillers and riggers, actually works hard for its money. Forget about the gold issue however, and let's focus on the DIVIDEND INCOME we could receive

I Don't Need Gold, But I Like To Dig For Nuggets

Actually, digging for nuggets in this case, means finding a stock at a good price, seemingly undervalued, that pays me to own it. Newmont Mining looks like a diamond, or should I say a golden nugget, in the rough!

NEM: Price: $32.05/share, Dividend Yield: 4.45%, ESS Rating: Neutral

Let's take a look at a chart:

NEM Price / Book Value Chart
(Click to enlarge)

In late 2011, the share price of NEM approached nearly $70.00/share. Since that time, and while the Fed has kept QE in place with low short term rates, using Operation Twist, and buying mortgage backed securities to force longer rates down, the price of gold, AND Newmont Mining, have dropped considerably.

Therein lies the dividend opportunity!

With the recent noise about the Fed thinking about pulling back from the QE policies, it might be a good time to use a stock such as NEM as a hedge against some of the higher interest rates we might see. At the same time, we are getting the stock at a very cheap price based on the fundamentals. Add a 4.37% dividend yield (accidental or not) and we might have a solid opportunity here.

The Raw Fundamentals Are Sound, Even With Rough Patches

While there has been no doubt that the share price of NEM has been under pressure, as has earnings, the basic fundamentals of the company are solid. Particularly for our income purposes.

  • Margins are about 18% pushed down from about 30%, due mainly to the drop in gold prices. If inflation rises and gold goes back up, this should reverse course.
  • Both revenues and earnings dropped last quarter, YOY, but once again, this could reverse course.
  • The price to book value is at a ridiculous level of 1.14, and even the price to sales is only at 1.70. These numbers alone make the stock super compelling to me, right now.
  • A forward PE ratio of 9.57 puts the stock in the undervalued range for me.
  • Nearly 83% of all outstanding shares are held by institutions. A rather lofty percentage, yet it has not changed much. My guess is that the institutions (and hedge funds) are hanging on, and even adding more NEM shares, for the inevitable rise in interest rates, which should change the price of gold and precious metals to the upside. (Ergo; a higher share price for NEM)
  • A compelling yield of 4.37% as of right now, makes this stock fall right in the sweet spot for income seeking investors. Not to mention the diversification into a sector that might have been ignored.
  • A low payout ratio of 45%, with the next ex dividend date being June 10th. A buyer now can pick up a dividend of $.35/share, with a stock that looks to me to be undervalued.
  • This company has been around for nearly 100 years. It is not going anywhere, and might be considered a strong value stock right now.

My Opinion

NEM has a compelling share price for buying low. With our main focus of dividend income, this stock might fit nicely in our Team Alpha Portfolio with the current yield on cost of 4.37%.

The stock is selling at multi-year lows and might also give us some capital appreciation with the income while we wait.

Source: I Am Not A 'Gold Bug' But I Do Like Newmont Mining For The Dividends