By Cory Mitchell
With interest rates stuck at all-time lows, and expected to remain there for the foreseeable future, investors are looking to commodities in hopes of evading the devaluation of the U.S. dollar. On the flip side, recent moves by the Fed and European Central Bank to "beef up" their respective stimulus efforts have many investors thinking about future inflation. Precious metals have long been the go-to asset class for investors looking to fortify their portfolio against inflation. However, investing in the companies that mine for these resources is also a viable strategy.
For those looking at an alternative, or complement to their gold holdings, below we outline four silver miners that currently pay a dividend - providing some yield during low interest rate times, and providing a hedge against if it inflation hits.
Silver Wheaton Corporation (SLW)
Share Price: $39.49
Dividend Yield: 1%
Market Cap: $14.3 billion
Payout Ratio: 24%
Based out of Vancouver, Silver Wheaton is the largest "pure play" silver mining company available to U.S. investors. Up until 2006, Goldcorp (NYSE:GG) controlled the company. But in 2008, Goldcorp divested completely from Silver Wheaton. Silver Wheaton is a silver streaming company - it forms agreements with silver mines to purchase their silver at a fixed cost for a set period of time. Over 24 million ounces of silver are produced through these 15 silver and three precious metal purchase agreements.
Through the agreements, Silver Wheaton is able to purchase silver at a cost of roughly $4 per ounce, from 13 mining partners operating 17 mines, with four more mines in development. From a geographic perspective, Silver Wheaton generates most of its silver from mines in Mexico (roughly 40%), followed by Portugal and the United States.
The company currently pays a $0.10 per quarter dividend to shareholders; with the share price near $40, that equates to a dividend yield near 1%. The firm's 1% dividend yield likely isn't too enticing for income-hungry investors, but its sheer size and position in the industry make it a worthy consideration.
Due to a high correlation between the price of silver and Silver Wheaton stock, a rise in the price of silver indicates a high probability Silver Wheaton's price will rise. A decline in the price of silver is also usually seen in the company's stock.
Pan American Silver Corp. (NASDAQ:PAAS)
Share Price: $19.80
Dividend Yield: 1%
Market Cap: $3.01 billion
Payout Ratio: 4%
Another Vancouver, Canada based firm, Pan American is primarily involved in the exploration, development and production of silver mining operations. The company has eight mining operations currently underway in Mexico, Peru, Argentina and Bolivia. In addition to silver, the company also extracts and sells gold, zinc, lead and copper. Founded in 1994, Pan American is the second-largest silver miner in the world.
Paying a $0.05 dividend per quarter, and with the share price near $20, the dividend yield for the stock is right around 1%. The payout ratio, which is calculated as dividends divided by earnings per share, is quite low at 4%. This shows the company is primarily focused on growing its operations and using most of its cash to find and finance future mining projects.
The Pan American stock price is linked to the price movements of silver; an overall rise in the commodity puts upward pressure on the stock, while falling silver prices put downward pressure on the stock.
Silvercorp Metal Inc. (NYSE:SVM)
Share Price: $6.01
Dividend Yield: 1.73%
Market Cap: $1.03 billion
Payout Ratio: 28%
Focusing on exploration, development and production operations in China and Canada, Silvercorp currently has five mining operation - four of which produce silver. Gold, lead and zinc are also mined. Silvercorp is China's largest silver producer, and is based out of Vancouver. While primarily focused on China, the company also operates a silver-lead-zinc mine in northern British Columbia, Canada.
The company recently paid a quarterly dividend of $0.026 per share. If that continues, the annual dividend yield, based on a $6 share price, is 1.73%. The dividend amount has frequently changed since 2007, though, but usually increased. Since the end of 2008, when the dividend was $0.016, the dividend has steadily risen except for one decline in the latter part of 2009 when the rate fell from $0.02 to $0.018.
Silvercorp expects a new mine to be operational in 2013, and plans to expand by more small-scale projects in China and self-funding their growth.
Hecla Mining Co. (NYSE:HL)
Share Price: $5.88
Dividend Yield: 1%
Market Cap: $1.69 billion
Payout Ratio: 52%
Based out of Coeur d'Alene, Idaho, Hecla discovers, acquires, develops and produces silver, gold, lead and zinc mines. Founded in 1891, the company has two mines operating in Alaska and Idaho. That makes it the oldest precious metal mining company in North America, and the largest silver producer in the U.S.
In 2011, the company produced 9.5 million ounces at a cost of $1.15 per ounce. Stock movements are highly correlated to silver; when the price of silver is rising, it creates more favorable margins for the company and pushes up Hecla's stock price. When declining silver prices squeeze those margins, the share price typically declines as well.
Hecla has a two-part dividend policy. The company has a minimum annual dividend of $0.01 per common share, and also has a silver-linked dividend. The silver-linked dividend fluctuates as it's related to the price that Hecla receives for its silver. In 2012, the total quarterly dividend ranged from $0.0025 to $0.0225, with the total dividend equaling $0.06 (annual), or a 1% dividend yield based on a $6 share price. While there is some variability in the dividend amount, rising silver prices are favorable for both dividend and capital gains investors.
Things to Remember
Dividend yields fluctuate as the dividend policy of the company changes, and as the stock price changes. Sharp changes in the stock price can make a dividend yield look artificially low or high. Check the company's investor section on its website to stay up to date on any news announcements which may affect shareholders and dividend policy. The stock price of silver streamers and silver miners will typically move with the price of silver, so investors should keep an eye on the overall trend of both the stock and silver before jumping in.
Disclosure: No positions at time of writing.
Disclaimer: Commodity HQ is not an investment advisor, and any content published by Commodity HQ does not constitute individual investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities or investment assets.