LOOK ELSEWHERE FOR DIVIDENDS
Lots of bad news is coming out of resource stocks as they publish results and production updates. The one that struck me was Kumba Iron Ore’s announcement that it had cancelled its interim dividend. Many people used to hold Kumba for that dividend, and now it is gone. Dividends are only great as long as there is certainty they are secure going forward, and in mining, dividends are never secure. Miners can boom – Kumba is not the only example. The platinum miners also did in the lead up to the 2008 crisis when they kept paying large special dividends. But the next dividend cut is pretty much always assured in singlecommodity producers and, as such, they remain trading stocks rather than the long-term buy and hold ones. Diversified miners are slightly different – and Anglo American and BHP Billiton* have held on to their dividends. But in these cases we’re seeing a f lat dividend (Anglo) or a modest increase (BHP Billiton). And as we saw in 2009 with Anglo, if things get really tough, even the diversified miners can cut a dividend to zero. The bottom line is that secure dividends are to be found elsewhere.
In mining, dividends are never a sure thing.