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You might not normally associate commodity producers with dividends, given their cyclical nature. But that could change according to a report from Byron Berry, of Byron Capital Markets.

"With companies like Freeport McMoRan doubling dividends, we have heard market participants discussing the possibility of more dividend increases," he said in a note. "We would not normally look to cyclical for yield or dividend increases, but the combination of a powerful commodities bull run and a market starved for yield could create some opportunities."

He looked at 880 mining and metals companies listed in Canada, with a market capitalization of at least $10-million each. Of these, 46 have positive free cash flow but only 12 companies pay a quarterly dividend. The average yield is about 1 per cent.

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However, 12 companies have free cash flow yields above 6 per cent. "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," Mr. Berry said.

These companies include Equinox Minerals Ltd. , Inmet Mining Corp. , Russel Metals Inc. , Neo Material Technologies Inc. and Breakwater Resources Ltd. Follow Market Blog on Twitter: @marketblog

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About the Author
Investing Reporter

David Berman has been writing about business and investing since 1995. He has written for a number of magazines, including Canadian Business and MoneySense. He worked at the Financial Post as an investing writer and daily columnist before moving to the Globe and Mail in 2008. More

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