The rising popularity of bullion-backed ETFs could be one reason gold miner stocks have lagged the precious metal so badly in recent years. Raising dividend payouts would attract more investors and help the sector compete with gold ETFs, says the chief executive of a gold producer.

“The generalist investor is not going to be attracted to an industry that is not judiciously allocating capital,” said Kirkland Lake Gold CEO Brian Hinchcliffe in a Bloomberg story Wednesday. “ETFs are a major competing alternative for investment. I’m talking about a 5 percent to an 8 percent dividend policy, that is the best defense against the ETF.”

Market Vectors Gold Miners ETF (NYSEArca: GDX) is down about 8% so far in 2012, while SPDR Gold Shares (NYSEArca: GLD) has added nearly 6%. [Capitulation Time for Gold Miner ETFs?]

Gold stocks are trading at the cheapest valuations in about a decade.

Meanwhile, holdings in bullion-backed ETFs have more than tripled in the last five years and reached a record 2,410.2 metric tons on March 13, valued at about $140.3 billion, according to Bloomberg.

Some gold miners have been raising dividends, especially small-cap firms, which could help stoke investor interest. [Gold Miner ETFs May Bring in Dividend Hunters]