Big miners learn to pay out to shareholders

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The world's biggest mining companies got the message: they need to pay their shareholders. And they are, with the mega miners increasing their dividends yet again this quarter.

The question now is how sustainable these payouts really are.

In case you haven't noticed, this is a major bull run. Sure commodity prices have come down a bit lately, but many of them are still sky high, relative to their historical values. Yet if there's one thing that's held true about commodities over time, it's that they are subject to nasty cycles. Not so good for steady dividend streams.

For now, it isn't an issue. Companies like Vale, Barrick and Teck Resources can all safely pump out more money out to shareholders. On Wednesday, Teck announced a 33 per cent increase to 40 cents per share semi-annually, just a few quarters after it already announced a 50 per cent increase. The company's dividend yield is now 2 per cent.

Same goes for Barrick . Buoyed by strong gold prices, the company has upped its quarterly dividend by 25 per cent by to 15 cents per share. That comes after raising the payout by 20 per cent in 2010.

How long they these payouts stay this high all depends on commodity prices, and some companies have been proactive about the fluctuations. For instance, Vale sets a minimum dividend payout at the start of each year. In 2011, that figure was $4-billion (U.S.), which gives investors some guidance. (The company is now on track to shell out $9-billion this year, a very nice surprise.)

Newmont Mining has taken an more unconventional approach by introducing its gold-linked dividend in April. For each $100 per ounce increase in the price of gold, the company's dividend now rises. The miner also adds 7.5 cents per share when the realized gold price in a quarter is higher than $1,700 per ounce, and another 2.5 cents if the realized gold price tops $2,000. Investors always know where they stand.

At this point the dividend payments aren't really that big of a worry for the miners. Newmont's yield is only 2.1 per cent, and Barrick's is 1.2 per cent, plus they've got ample cash on their balance sheets. It's more on shareholders to realize that these dividends may not always be around. Keep in mind that in April 2008, Teck's semi-annual dividend was 50 cents per share, 25 per cent higher than where it is now. A few months later, it was completely cut.