Newmont Mining (NEM) announced a dividend increase from $0.25 to $0.40 per share in October of 2020 and again increased the dividend in February, 2021 — to $0.55 per share, points out Alan Newman, editor of Crosscurrents.
The company's policy is to return 40 to 60 percent of incremental attributable free cash flow to shareholders that is generated above a $1,200 per ounce gold price. The company’s base annual dividend remains $1 per share and is sustainable at a level of $1,200 per ounce for gold.
Gold closed 2021 at a level of $1,830 per ounce and the last time gold closed a month under $1,200 was back in September of 2018. Despite occasional and inevitable zig zags, gold has consistently traded above $1,200 for over a decade and remains in a long term uptrend, which augurs well for Newmont shareholders.
We have been long term bulls on the yellow metal, calling for a super bull market beginning on 9/11, over twenty years ago. We have seen no reason to temper our views, despite the relative outperformance of speculative “momentum” stocks in the last few years and from the apparent competition of cryptocurrencies.
Newmont’s current yield is 3.55%. Dividends for the S&P 500 have generally contracted over the years and now average a mere 1.24%, only a few ticks from the all time record low of 1.11% in August 2000. The historic median for S&P 500 dividends is 4.25%. Attaining that level would require a severe bear market.
Given that the S&P 500 are vastly overvalued by historical measures such as a price earnings (P/E) ratio more than double the historic median, a severe bear market cannot be ruled out. Cryptocurrencies generally do not pay any dividends at all.
For disclosure, I own NEM and the shares have been a perennial favorite of mine for many years. For long term holders, we believe Newmont Mining makes a lot of sense.
