Silver Wheaton is the latest company to introduce a dividend tied to the price of its main metal.
Under the new policy, Silver Wheaton’s payout will amount to 20 per cent of the operating cash flow realized during the previous quarter. But because it is a silver stream company and gross profit depends on the price of silver, the dividend is effectively tied to the metal’s price.
Before the change, Silver Wheaton paid 3 cents per share each quarter. The new system amounts to a dividend of 9 cents per share this quarter.
Silver Wheaton is following in the footsteps of Newmont Mining Corp. which introduced a gold-linked dividend in April. For each $100 (U.S.) per ounce increase in the price of gold, the company’s dividend now rises by 20 cents per share, and bonus cash is paid out when gold crosses $1,700 and $2,000 per ounce. (Of course, the dividend also drops when gold prices fall.)
Newmont’s policy was well received. Everyone knows the big mining companies need to start paying out more, because their cash flow has been so rich, but it’s hard to commit to a fixed dividend when no one knows where metal prices will be next year.
By implementing a floating dividend linked to metal prices, investors at least know where they stand. Though the dividend could fall, at least the companies won’t have to announce unexpected dividend cuts in the future, and that benefits them because these are always poorly received by the market.