Dividends are vital but commonly ignored component of the total return provided to investors. For example, Homestake Mining was one of the largest gold miners in the United States during the secular bull market of 1924-1936. Over this period, Homestake’s stock price and dividend payout surged 864% and 800%, respectively. Gold stocks were the play of the decade not only because of capital gains but also DIVIDENDS. This cycle repeated from 1968 to 1980’s and is repeating today.
The S&P Gold (formerly Precious Metals Mining) is a capital appreciation index that completely ignores dividends. A poorly informed public, toiling within the previous investing paradigm, has no idea the cycle is repeating and/or gold stocks will resume their historical role as capital appreciation and dividend (cash) machines - at least the good ones.
Headlines and investors focused solely on price appreciation see only 'disconnect' in the gold shares. Disconnect creates fear and fear encourages selling despite one the greatest secular bull market in history.
S&P Gold (Formerly Precious Metals Mining)* to Gold Ratio:
* S&P Gold from 1945, Barron's Gold Stock Index from 1939-1945, 1922-1939 Homestake Mining
Headline: Mining Share Ratio To Gold Back At Pre-QE1 Levels
The following ratio chart says in a picture just how severely undervalued the gold stocks are in relation to the price of bullion.
You might recall that as the credit crisis erupted in the summer of 2008 with the failure of Lehman Brothers and subsequent meltdown of other large financial firms, stocks and commodities plummeted as the Yen carry trade unwound and deflationary fears escalated.
The rumors began to circulate as the crisis deepened that the Federal Reserve was getting ready to implement some unorthodox policies in an attempt to stave off the deflation and prevent a credit market lockup. That was when the phrase, “Quantitative Easing” first began making the rounds in the markets.
Source: jsmineset.com
