I believe that the inflationary monetary policy being pursued in the United States and many other parts of the world are a tool to continue the trajectory of turning financial markets into speculative casinos, characterized by greater volatility and shorter frequency trading. But I also believe the biggest beneficiaries of this event will be stocks that yield dividends as well as gold mining stocks.
In a world in which monetary policy is suppressing bond rates so that debt currently yields negative returns, equities generating profits and dividends, with capable management and sufficient market capitalization, are amongst the most appealing opportunities -- outside of precious metals, that is. Barrick Gold (NYSE:ABX) and Newmont Mining (NYSE:NEM) hit on all cylinders: they both have market caps greater than 32 billion, are gold miners, and just announced dividend increases.
Barrick upped its dividend by 25% to $0.15 a share, while Newmont raised its payout to $0.35 a share -- a 17% increase on the figure for the preceding quarter. This brings Barrick's dividend yield to 1.18%, while Newmont's is now at 2.04%.
In a world where government bonds of the leading currencies of the world are yielding below 1%, these numbers may garner attention from fund managers. As the global sovereign debt crisis continues down its path, which will inevitably yield higher prices, the search for dividends will intensify. Companies that have committed themselves to issuing dividends and possessing the ability to continue to do so will benefit greatly as money comes rushing out of the bond market, looking for dividends to find safety in.
And the companies best situated to issue dividends may be gold miners, as the price of gold will continue to rise much, much higher. Newmont in particular has already announced its plan to make its dividend a function of the price of gold; this positions the company extremely well, provided they continue to display a competence in mining for gold at an efficient cost. Both Barrick and Newmont report well over 10 million ounces of gold indicated in their various projects.
As this situation progresses, dividend yields will be an increasingly important financial metric to watch. It will be compared against the yield offered on debt instruments, particularly currencies.
If central banks raise interest rates in response to realized price inflation, finding strong companies with a dividend yield greater than competing interest rates on currencies may be a vital distinguishing factor. In this regard, Newmont's current dividend yield of 2.04% and its policy of making its dividend a function of the gold price leave the company very well-positioned; the more central banks engage in stimulus that adds debt to the global economy while refraining from a restructuring that would introduce a new international monetary agreement, the higher the gold price -- and thus Newmont's dividend issuance -- will go.
If investor inflow due to these factors creates a sharp increase in Newmont's share price, the company will be better positioned to use its shares as an acquisition tool to defend its incumbent position in the mining industry.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.