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What are we looking for?

Forget gold coins. We're looking for gold stocks with rising production, cash flow and sustainable dividends.

The screen

Market volatility often sends investors scrambling for the "safe harbour" of gold. But all bets are off on whether the precious metal will still provide that protection. (The fact is during the latest rout, gold moved down with the market.)

Given fickle prices, our advice has always been to limit gold to a small portion of your portfolio.

If you're set on it, gold-mining stocks are preferable to bullion and other forms of physical gold that come with carrying costs. Rising production and cash flow give them sustainable dividends – despite volatile gold prices.

To find those stocks, we start with U.S. and Canadian gold producers offering dividends. We then single out those with strong output and cash flow, before applying our TSI Dividend Sustainability Rating System. It awards points to a stock based on key factors:

  • One point for five years of continuous dividend payments – two points for more than five;
  • Two points if it has raised the payment in the past five years;
  • One point for management’s commitment to dividends;
  • One point for operating in non-cyclical industries;
  • One point for limited exposure to foreign-currency rates and freedom from political interference;
  • Two points for a strong balance sheet, including manageable debt and adequate cash;
  • Two points for a long-term record of positive earnings and cash flow sufficient to cover dividend payments;
  • One point if the company is a leader in its industry.

Companies with 10 to 12 points have the most secure dividends, or the highest sustainability. Those with seven to nine points have above average sustainability; average sustainability, four to six points; and below average sustainability, one to three points.

More about TSI Network

TSI Network is the online home of The Successful Investor Inc. – the group of widely followed Canadian investment newsletters by editor and publisher Pat McKeough. They include our award-winning flagship newsletter, The Successful Investor. The TSI Best ETFs for Canadian Investors is the latest. TSI Network is also affiliated with Successful Investor Wealth Management.

What we found

Our TSI Dividend Sustainability Rating System generated six stocks. Newmont Mining is ready to overtake Barrick Gold as the world's No. 1 gold producer, although both make the grade. Low-risk jurisdictions secure Goldcorp's output, while Agnico-Eagle Mines' eight sites benefit from the same kind of political stability. Yamana Gold's own six mines secure its cash flow, with a recent acquisition doing the same for Alamos Gold.

We advise investors to do additional research on any investments we identify here.

Scott Clayton, MBA, is senior analyst for TSI Network and associate editor of TSI Dividend Advisor.

Gold stocks with sustainable dividends

Ranking*CompanyTickerDividend Sustainability RatingDividend Yield (%)PointsMarket Cap ($Bil)**Share Price ($)**1Yr Total Return (%)
1Barrick GoldABX-TAverage0.9619.716.83-34.0
2Newmont MiningNEM-NAverage0.8620.137.03-0.8
3Agnico-Eagle MinesAEM-TAverage1.0512.855.09-16.4
5Yamana GoldYRI-TAverage0.743.83.90-16.5
6Alamos GoldAGI-TAverage0.442.76.79-40.7

Source: Dividend Advisor