The gold price recovery in recent months has led to a jump not only in investor confidence in gold equities, but has also given senior gold producers the license to consolidate their businesses to achieve cost synergies and increase production. This is why senior gold producers that pay a dividend could turn out to be a solid bet in light of the recent improvement in prices.
Let’s take a closer look at three gold miners that pay a dividend and why they could be solid investments going forward.
Barrick Gold
Barrick Gold [stock_market_widget type="inline" template="generic" color="default" assets="ABX.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] has been in the news of late thanks to its acquisition of Randgold and its joint venture with Newmont Mining in Nevada. Both these moves are expected to be highly accretive to the company’s financials going forward, allowing it to reduce costs and boost production at the same time.
This puts Barrick Gold in a great position to benefit from higher gold prices, and also boost its dividend. Barrick Gold currently carries a forward dividend yield of 2.13%, with a dividend per share of C$0.37. What’s more, the company’s payout ratio of 46% can be considered conservative as its earnings can support Barrick’s existing dividend and also leave scope for increases going forward.
The good part is that Barrick Gold seems well-prepared to increase its earnings in the future, which will eventually have a positive impact on its bottom line. In fact, analysts expect the company’s earnings to jump from $0.35 last year to $0.40 this year. For 2020, analysts expect Barrick to deliver earnings of $0.47 per share.
More importantly, Barrick looks capable of achieving this level of earnings growth not just in the near term, but also in the long term. For instance, Barrick’s $6.5 billion acquisition of Randgold is expected to boost the former’s EBIT (earnings before interest and taxes) margin from as low as 11% last year to a range of 25%-30% by 2020.
This impressive jump in Barrick’s EBIT will be a result of the higher grades at Randgold, as well as an improved supply chain. However, this isn’t the only catalyst that Barrick investors enjoy at present.
The company’s joint venture with Newmont is expected to deliver annual pre-tax synergies worth $500 million within the first five years. This will further aid the growth of Barrick’s bottom line in the long run, setting the stage for more dividend growth in the future.
Agnico Eagle Mines
Agnico Eagle Mines [stock_market_widget type="inline" template="generic" color="default" assets="AEM.TO" markup="(TSX: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] is yet another gold miner that pays a decent dividend. Its dividend yield of 1.13% might not be as handsome as Barrick, but the good part is that the company has increased its dividend for the past seven years.
The alarming part, however, is the payout ratio. Agnico Eagle Mines carries a dividend payout ratio of 172%. This means that the earnings it generated over the past year weren’t enough to support the payout. But investors shouldn’t fret much about that as Agnico seems all set to overcome the problem this year and beyond.
Analysts expect Agnico to almost double its earnings in 2019 to $0.61 per share, up from $0.31 per share last year. The company is expected to deliver earnings per share of $1.12 next year, so the payout ratio should come down drastically going forward thanks to the company’s bottom line acceleration.
But the more important thing to note here is that Agnico is capable of delivering such earnings growth because of its improving production profile and lower costs. Its gold output is expected to increase from 1.63 million ounces last year to 1.75 million ounces in 2019. For 2020 and 2021, Agnico expects to clock production in excess of 2 million ounces.
The increase in Agnico’s production will be accompanied with a decline in its cost base. Its all-in sustaining costs (AISC) are expected to drop from $900 an ounce in 2019 to $865 in 2020, with further reductions anticipated in the subsequent year.
As a result, Agnico Eagle Mines investors can expect further upside in the dividend going forward, making it a solid play for income investors.
Newmont Mining
Newmont Mining [stock_market_widget type="inline" template="generic" color="default" assets="NEM" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] carries a dividend yield of 1.62% and has a conservative payout ratio of 45.5%. Also, the company has boosted its dividend for the past three years.
Looking ahead, Newmont investors can expect further growth in the company’s dividend because of two reasons – the impending acquisition of Goldcorp and the tie-up with Barrick in Nevada. The acquisition of Goldcorp is expected to deliver $100 million in annual pre-tax synergies, and it expects to achieve further through the companies’ “cost and efficiency opportunities that will be pursued through our proven Full Potential continuous improvement program.”
Meanwhile, we have already seen that Newmont’s JV with Barrick in Nevada will be another tailwind for the company, creating annual pre-tax synergies to the tune of $500 million within the first five years. As a result, Newmont investors can expect the company to deliver further dividend growth going forward, making it yet another good bet for income investors.
