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.
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
David Berman