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Gold miners have never been known for paying generous dividends. But thanks to free-falling stock prices across the sector, they carry some unprecedented yields.
Barrick Gold Corp. has a dividend yield of 5.3%, which puts it in the same league as BCE Inc. (5.4%) and ahead of all the Canadian banks. Other gold miners with outsized yields include Iamgold Corp. (6.2%), Newmont Mining Corp. (4.8%) and Centerra Gold Inc. (4.5%).
The situation is not likely to last very long. Experts said at least some gold miners would consider slashing their dividends if the gold market does not turn around soon. The cuts could begin later this month, when they report second quarter earnings and detail their responses to plunging prices.
Traditionally, gold miners paid little to no dividends. That changed over the last several years as they began to generate record profits and investors urged them to return more cash. Every significant gold producer has either introduced or increased its dividend (or both) in recent years.
Now that gold prices are falling, the downside of that strategy is becoming apparent. Margins are getting squeezed and many companies are struggling to generate any free cash flow at today’s price of US$1,250 an ounce.
Analysts have cited Barrick as one clear candidate for a dividend cut if current gold prices persist. The company’s balance sheet is under pressure because of high debt and cost overruns and delays at its Pascua-Lama project. Cutting the dividend would save the company roughly US$800-million a year, though it would be a bitter pill to swallow for chief executive Jamie Sokalsky, who has put a priority on maximizing shareholder returns.
“I believe [Barrick] should maintain their dividends and show investors the money for their patience. But the prudent thing to do is reduce them,” said John Ing, president and gold analyst at Maison Placements.
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