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]
The 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,” ETF Securities said in a 2011 report.
GDX, the gold miner ETF, is trading near a 52-week low.
“Why should you be looking at mining stocks when you have geopolitical risks, labor problems and rising-cost issues?” said Donald Selkin at National Securities Corp. in a recent report. “I would prefer owning gold and exchange traded funds as I do not have to worry about anything else beside prices.”
Market Vectors Gold Miners ETF
Full disclosure: Tom Lydon’s clients own GLD.