The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.
NEW YORK (
announced in April that it will link its dividends to the prevailing gold price.
The recent turmoil in the equity markets has led a robust rally in the spot market gold price as investors have sold off risky assets. With the new dividend policy and the potential for greater profitability due to the higher gold price, we see significant upside to the company's stock price.
Newmont, primarily a gold miner, competes with other international gold producers like
We currently have a
, implying a 20% premium to the market price.
The rally in gold benefits Newmont's shareholders more than those of most other mining companies due to the dividend policy, whereby shareholders receive an additional 20 cents per share for every $100 increase in the spot gold price. The dividend scheme should continue to hold investor interest in the company, providing greater dividend payouts in addition to the potential capital gains.
Gold recently traded up to an all-time high of more than $1,900 an ounce. Even so, continued uncertainty in the financial markets could fuel further demand.
With the high spot price, Newmont is set to post robust results in the next quarter as well. As the company mines gold at a fixed price and sells it at the spot price, higher prices lead to greater profitability. Moreover, mining companies are looking to take advantage of gold's run by increasing their production and moving fast toward completion of new projects. Higher production coupled with the higher gold price gives Newmont's stock an edge relative to the gold ETF.
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This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.