Barrick Gold produced 1.2 million ounces of gold in the fourth quarter.
David Gray/AFP via Getty Images
Barrick Gold , one of the two largest gold mining companies in the world, plans to introduce a variable dividend linked to debt levels that could result in a yield of nearly 3% based on the current share price.
Many investors have wanted Barrick Gold (ticker: GOLD) to initiate such a program given that rival Newmont (NEM) already has one.
Barrick shares were responding favorably to the news Wednesday morning, gaining 5.2%, to $21.74.
Barrick announced the dividend policy in conjunction with its fourth-quarter earnings, which were flat from a year ago, at 35 cents a share, topping the FactSet consensus estimate of 30 cents. The Toronto company also unveiled a $1 billion stock repurchase program.
Barrick’s new “performance dividend” will start this year and supplement a base quarterly dividend.
Here’s how it works. The base dividend was increased to 10 cents a share from 9 cents for the payout to be made in mid-March. Starting with the next quarterly dividend that will be declared in May and paid in June, Barrick plans to pay an additional performance dividend linked to debt levels.
Based on the company’s net cash (cash less debt) of $130 million at year-end 2021, the performance payout would be 5 cents a share quarterly. The performance payout will be based on net debt at the end of the current quarter.
The company has not set the new performance payout yet.
At a combined 15 cents quarterly, Barrick’s dividend yield would be 2.9%, based on the current stock price.
Newmont, whose shares trade are up 1.4% to $64.18, has a yield of 3.5% based on a combined annualized payout of $2.20 a share, comprising a $1 a share base dividend and a variable $1.20 a share dividend linked to gold prices.
Barrick has chosen a different approach and linked its variable payout to its debt level, which is unusual among commodity producers.
If Barrick has any net debt, the performance payout is zero. At zero to $500 million in net cash, the quarterly payout would be 5 cents. At $500 million to $1 billion of net cash, it would be 10 cents and at more than $1 billion of net cash, the performance payout would be 15 cents quarterly. So if net cash tops $1 billion, the total dividend is $1 a share (40 cents base and 60 cents of performance dividend) annually or a nearly 5% yield.
“Our strong operating performance and financial strength has allowed us to further increase our base quarterly dividend and provide our shareholders with guidance on additional performance dividends going forward,” said Graham Shuttleworth, Barrick’s senior executive vice president and chief financial officer “In addition to the enhanced dividend, the announcement of a share repurchase program highlights that Barrick continues to be committed to returning value to our shareholders.”
Barron’s wrote favorably about Barrick nearly a year ago, pointing to it as a potential hedge against financial turmoil.
“I think the combination of a performance dividend and share buyback highlights Barrick’s attentiveness to opportunistically return cash to their fellow shareholders,” says Larry Pitkowsky, manager of the GoodHaven mutual fund (GOODX), a Barrick holder.
The move by Barrick comes as variable dividends are becoming more common among resource producers given their robust earnings and strong balance sheets amid high commodity prices. The policies are popular with investors who like to see ample cash returns.
Oil and gas producers Devon Energy (DVN) and Pioneer Natural Resources (PXD) have variable dividends as does copper miner Freeport-McMoRan (FCX). Barron’s wrote about the growing trend in January.
Write to Andrew Bary at [email protected]
