Do you think gold can only be a zero income asset? Give ‘SGDM’ a look
Gold bullion itself does not offer dividends or interest payments to investors, which means it is a zero income asset, but investors can earn income through miners gold and exchange-traded funds such as the Sprott Gold Miners ETF (NYSEArca: SGDM).
SGDM tracks the Solactive Gold Miners Custom Factors Index and “emphasizes gold companies with the highest revenue growth and free cash flow yield, and the lowest long-term debt-to-equity ratio “, according to the issuer.
What makes SGDM attractive in today’s low interest rate environment is that large gold mining companies are becoming credible dividend growth ideas.
“Precious metal miners are expected to more than double their dividends this year to outpace copper producers’ 75% rise, according to Bloomberg’s annual dividend forecast for industry groups from Bloomberg Intelligence,” reports Bloomberg.
SGDM: Paying the Revenue Bill
Due to SGDM’s unique methodology – which avoids market capitalization weighting – the Sprott ETF is positioned to help investors take advantage of increased miner payouts.
SGDM tracks mid- to large-cap gold mining companies, but the underlying index weights the constituents based on quarterly year-over-year revenue growth and the quality of their balance sheets as measured by the long-term debt to equity. By emphasizing balance sheet strength, the fund has greater exposure to companies with lower long-term debt-to-equity ratios. These organizations are better prepared for economic downturns.
“Bullion producers have been more successful in rewarding investors with higher dividends than copper companies over the past two years, thanks to their ability to generate excess cash higher gold prices,” adds Bloomberg. “AngloGold Ashanti Ltd. has more than quintupled its dividend this week after record gold prices boosted earnings, following similar moves from rivals including Newmont Corp.
Dividend-paying stocks can also help protect investors from a broad market pullback. This is particularly the case for the components of this model portfolio which, due to their qualitative characteristics, tend to show less volatility on the crude markets. Dividend growth is also significant today as payout producers generally resist rising rates. This is extremely relevant with rising Treasury yields.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.