Today, it can be difficult to find a precious metals stock that provides a reliable, worthwhile dividend.
And since gold and other precious metals don’t pay dividends directly, income investors are hard-pressed to attain a good position in these resources.
Thus, we need to pay particular attention to those precious metals stocks that do have meaningful dividends, and take advantage of them. With that in mind, I went digging for opportunities…
The Fallout From an Epic Run-Up
At one point, precious metals mining stocks were excellent plays for income investors. An individual mine, once constructed, settled into a predictable income stream that offered investors steady dividends and an upside on precious metals prices.
Of course, when the mine ran out of gold, the income stream ceased. That made such plays suitable for only part of the portfolio… but with inflation an ever-present danger, they were still a useful hedge.
Alas, solid dividend-paying precious metals stocks are an endangered species today, and the killer was the long run-up in gold and silver prices from 2000 to 2011.
The run-up made mines with a finite life and moderate reserves trade at a discount. Meanwhile, the premium players were those with aggressive exploration plans and a steady succession of new mines, which gave the impression of perpetual production growth.
But the reversal in precious metals prices since 2011 has wreaked havoc on these plans.
Expansive exploration budgets were barely affordable at lower prices, and even profitable companies developed a nasty habit of requiring massive write-offs on projects that had lost value. That destroyed both assets and earnings, and put companies in severe danger of violating debt covenants.
Even for basically profitable companies, dividends went out the window. Worse yet, the pernicious fashion for stock buybacks (which are of little or no benefit to retail investors) led many companies to buy back their stock near the top of the market and then watch the price collapse, decimating shareholder value.
