Majors' Dividend Policies Showing More Confidence In Earnings

Over at Seeking Alpha, Tim Wood doesn`t mention that reason for a change in dividend policy but he does call attention to the change itself. He discusses the dividend policies of several majors, and says that Eldorado`s new policy is a fair one for shareholders.

Eldorado Gold (EGO) was the last dividend hold out among senior gold producers. It has now bowed to market pressure and offered shareholders $0.05 per share

Notably, Eldorado has taken a lead in expressing its dividend in terms of a gold equivalency insofar as the payout will amount to approximately $100 per ounce of gold sold by the company in the second half of 2010. If the company holds that policy, investors could be paid nearly $75 million this year which would be almost three times what is currently being offered.

Kudos. It is high time that one of the companies did this, and it should become a benchmark for the industry to commit to pay a percentage of their operating margins as dividends.

This avoids trapping the company in an unsustainable dividend ratio, but holds it to share any bonanza with investors. This would also have the benefit of improving the gearing of gold stocks to bullion prices. Yes, it may make them more volatile, but that is hardly something most gold equity investors fear.

If all the senior gold companies adopted a dividend equivalent to $100 per ounce of gold produced, investors would enjoy a 125% increase in payouts to around $3.5 billion per year.

Of all of them, only Goldcorp exceeds this level. Confidence in future earnings is increasing amongst the majors, but not to that level yet.