Newcrest chief defends dividends

Newcrest and BlackRock - the world's biggest mining fund manager and Newcrest's biggest shareholder - will have to agree to disagree on the reasons why gold stocks have lagged behind the surge in gold prices.

By InvestSMART · 28 Oct 2011

By InvestSMART ·
28 Oct 2011

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NEWCREST and BlackRock - the world's biggest mining fund manager and Newcrest's biggest shareholder - will have to agree to disagree on the reasons why gold stocks have lagged behind the surge in gold prices.

BlackRock chief Evy Hambro said earlier this week the disconnection between gold's rise and gold share prices reflected meanness by the gold companies when it came to their dividend payout ratios.

Newcrest managing director Greg Robinson has different ideas. Speaking after the group's annual meeting in Melbourne yesterday, Mr Robinson agreed that there was a gap, maybe as much as 15 per cent to 20 per cent across global gold stocks. But rather than blaming dividend yields, he pointed to more structural issues.

''Short-term money, when it is attracted to gold, goes into physical [gold] and exchange-traded fund markets. But I think that when you are looking at the medium to longer term, you find that stocks will reflect longer-term [gold] prices,'' Mr Robinson said.

''If prices hold - and people are forecasting higher prices - you will see the stocks recalibrating in price.''

Mr Robinson defended Newcrest's dividend record. For the June year, it paid an ordinary dividend of 30? a share and a ''special'' dividend of 20? a share. The 50?-a-share total doubled the 25?-a-share total for 2010.

''We are at the higher end of dividend payments by gold companies,'' he said. ''We are roughly at a 1.5 per cent yield with that normal and special dividend that we paid - and that would be in amongst the top in the gold industry.''

The annual meeting was a low-key affair, the highlight being Newcrest securing one of the highest ''yes'' votes (96 per cent) in the annual meeting season for the adoption of its remuneration report, despite the urging of the Australian Shareholders Association for a protest vote.

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Frequently Asked Questions about this Article…

Why have gold stocks lagged even though gold prices have surged?

There are different views. BlackRock says the disconnect reflects ‘meanness’ in dividend payout ratios by gold companies. Newcrest’s managing director Greg Robinson points to structural reasons — short-term money flows into physical gold and gold ETFs, while stocks tend to reflect medium-to-longer-term price expectations. The article notes a possible 15–20% gap between gold prices and gold-stock performance.

What did BlackRock chief Evy Hambro say about gold companies and dividends?

Evy Hambro of BlackRock argued that the disconnect between the rise in gold and weaker gold-share prices was due to gold companies being stingy with their dividend payout ratios — implying lower dividends have hurt share performance.

How does Newcrest’s managing director Greg Robinson explain the performance gap in gold stocks?

Greg Robinson said short-term investor money attracted to gold tends to go into physical gold and exchange-traded funds, whereas gold stocks reflect longer-term price expectations. He suggested that if higher gold prices hold, stocks should ‘recalibrate’ over the medium to longer term.

What dividends did Newcrest pay for the June year and how does that compare with 2010?

For the June year Newcrest paid an ordinary dividend of 30¢ a share and a special dividend of 20¢ a share, a 50¢-a-share total. That total doubled the 25¢-a-share total Newcrest paid in 2010.

What dividend yield did Newcrest report and how does it rank in the gold industry?

Newcrest said the combined ordinary and special dividend produced roughly a 1.5% yield, and that level would be among the higher dividend yields in the gold industry.

Does Newcrest consider itself generous with dividend payments compared with other gold companies?

Yes. Greg Robinson defended Newcrest’s dividend record, saying the company is at the higher end of dividend payments among gold companies and highlighted the 50¢-a-share payment and roughly 1.5% yield as evidence.

What happened at Newcrest’s annual meeting and was there anything notable for shareholders?

The annual meeting was described as low-key. Notably, Newcrest secured one of the highest ‘yes’ votes of the season — 96% — for the adoption of its remuneration report, despite the Australian Shareholders Association urging a protest vote.

What should everyday investors take away from the Newcrest vs BlackRock debate about dividends and gold stocks?

The article highlights two key points: some investors (like BlackRock) see low dividend payout ratios as a reason gold stocks lag, while Newcrest points to structural market flows that favour physical gold and ETFs in the short term. For everyday investors, that means watching both dividend policies and broader market flows — and noting that management argues stocks may catch up if higher gold prices persist.