Dividend stocks are everywhere, but many just downright stink. In some cases, the business model is in serious jeopardy, or the dividend itself isn’t sustainable. In others, the dividend is so low, it’s not even worth the paper your dividend check is printed on. A solid dividend strikes the right balance of growth, value, and sustainability.
Today, and one day each week for the rest of the year, we’re going to look at one dividend-paying company that you can put in your portfolio for the long term without too much concern. This isn’t to say that these stocks don’t share the same macro risks that other companies have, but they are a step above your common grade of dividend stock. Check out last week’s selection.
Gold, why has’t thou forsaken me?
Spot gold may have a 12-year streak of increases, but you’d be hard-pressed to know that based on the chronic underperformance of gold miners. Both domestically and abroad, miners have dealt with a rash of problems ranging from increasing labor and mining equipment costs to political instability in the countries they’re operating in.
In South Africa, miner AngloGold Ashanti Limited (ADR) (NYSE:AU) came to a pay raise agreement with laborers at its TauTona and Mponeng mines in late October after a summer filled with worker sit-ins and violence in the region. Approximately 10,000 workers caused a complete shutdown in two of AngloGold’s mines, and when AngloGold’s mines came back online, other miners in the region, including Gold Fields Limited (ADR) (NYSE:GFI), were still feuding with workers.
Closer to home, it’s just been the simple issue of getting the precious metal out of the ground at a reasonable costs. Newmont Mining Corp (NYSE:NEM), one of the world’s largest miners, took a complete $1.61 billion writedown on its Hope Bay project in Canada. It’s not that Hope Bay isn’t promising; it’s simply that Newmont has multiple large projects ongoing at once and costs for all of them are rising dramatically. Likewise, Thompson Creek Metals Company Inc (USA) (NYSE:TC), which reported earnings earlier this week, is prepping to bring its Mount Milligan copper and gold mine online in the fourth quarter this year, but not after the cost of building out the mine soared considerably higher than the initial estimates, forcing the company to sell some of its gold interest to Royal Gold, Inc USA) (NASDAQ:RGLD) and to furlough some of its molybdenum mining in favor of cutting costs and receiving upfront cash from Royal Gold.
So where does this leave Yamana Gold Inc. (USA) (NYSE:AUY)? As I noted in early January, better off than any other gold miner.
Yamana’s secret weapon
In January I examined the 12 largest gold producers and determined that, based on production cash costs, production growth, debt-to-equity, and forward P/E, Yamana Gold Inc. (USA) (NYSE:AUY) possessed the best overall package of any miner. Of the miners I examined, Yamana’s cash costs were the absolutely lowest at just $201 an ounce — and there’s a good reason for this: byproduct sales. Both Yamana and Goldcorp Inc. (USA) (NYSE:GG), which operate in Central and South America, have relied heavily on byproduct sales (i.e., copper, zinc, and molybdenum) to help offset the cost of their gold production. By contrast, AngloGold, Gold Fields, and other African miners boast mining costs that are often three to four times higher on a per-ounce-basis.
