Exchange traded funds tracking gold miners are caught in a downdraft, along with gold prices, coming off the Christmas weekend. Miner ETFs have underperformed gold by a wide margin this year, but some companies are raising dividends, especially the junior miner category.
Market Vectors Gold Miners (NYSEArca: GDX) is moving closer to its 52-week low of $50.42 a share, and lost nearly 2% on Tuesday. Market Vectors Junior Gold Miners (GDXJ), which tracks small-cap stocks, also lost ground.
Meanwhile, gold prices dipped below $1,600 an ounce.
According to David Christensen, CEO of ASA Gold and Precious Metals Limited (NYSE: ASA), dividend growth has tapered off “quite substantially” as the industry focused on growth and “started to chase the juniors and the mid-tier companies to a greater extent,” reports Geoff Candy for Mineweb.
However, we are beginning to see gold producers offer dividend yields again. GDX, which tracks larger gold miners, offers a 0.7% yield while GDXJ, which leans toward small- and mid-cap miners, yields an impressive 5%.
“Now it’s coming full cycle as many of those mid-tier companies have grown up to be large producers,” Christensen added, “and, given the high metals prices they started to kick off some significant free cash flow, resulting in rising dividends once again.”
With gold prices set to finish higher for the 11th consecutive year, producers are swimming in extra cash, writes Dan Denning for CommodityOnline. While producers are partly paying out more dividends because of their higher cash positions, they are also dishing money out to shareholders because of greater competition, namely low-cost precious metals ETFs. [Gold Miner ETFs Look to Catch Up to Bullion in 2012]
“Right now the mining companies are trading more akin to the cyclical heavy industry mining,” Christensen stated. “The senior companies are trading akin to about five times cash flow at the moment – I don’t see a significant level of downside to the current multiples in the mining industry and we at ASA think that the mining investments in general are very inexpensive today relative to where we’ve seen them in the past.”
“The recent divergence between the bullion price and gold miners’ stocks does not appear to be justified by deterioration in the fundamentals or in the underlying value of their shares,” Simona Gambarini said in a recent ETF Securities report.
Market Vectors Gold Miners
For more information on gold miners, visit our gold miners category.
Max Chen contributed to this article.