What we're looking for

Resource companies that are likely to pay out or increase dividends.

With the recent surge in commodity prices, mining companies are rolling in cash. What better way to use it than to return it to investors?

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"With companies like Freeport McMoRan doubling dividends, we have heard market participants discussing the possibility of more dividend increases," write Byron Berry and Sandy Lam at Byron Capital Markets in a recent report titled Commodity Stocks as Yield Plays.

"We would not normally look to cyclicals for yield or dividend increases, but the combination of a powerful commodities bull run and a market starved for yield could create some opportunities."

More on today's table

They screened Canada's 880 metals and mining companies that have a market capitalization of more than $10-million and came up with the 46 that also have positive free cash flow. They found that only 12 issued dividends, with an average yield of 1.03 per cent. They also found 12 companies that have free cash flow yields above 6 per cent.

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"We believe this level of FCF yield gives enough headroom for a healthy 3-4 per cent yield and a payout ratio of 40 per cent to 67 per cent," they said.

"Our investment thesis: Like the commodity, like the cash flow, then decide."

Among their picks: Equinox Minerals Ltd. , Inmet Mining Corp. , Russel Metals Inc. , Neo Material Technologies and Breakwater Resources Ltd. .