If the eyes are the window into a person’s soul, then on a corporate level, we can say the same about dividends. Dividend payouts cannot be faked. Earnings can be massaged and managed from one quarter to the next, but dividends are almost always paid in real cash. A company can only maintain dividends without true earnings power for so long. Over the long term, dividends are a great way to truly assess the health of a business.
Moreover, changes in dividends over time are the best way for management to signal the likely future prosperity of their company. At the same time, dividend reductions are rarely received well. That’s exactly what’s happening with Newmont Mining Corp (NYSE:NEM), which cut its payout while simultaneously reporting a massive loss.
In light of this, is now the time to ditch miners completely? Or does this signal the bottom for mining stocks?
Not all that glitters is gold
Newmont Mining Corp (NYSE:NEM)’s quarterly report was an ugly one. The market shouldn’t have been entirely surprised—it’s well known that gold prices plummeted over the past several months. For gold miners, this is a serious drag on profitability.
All told, Newmont Mining Corp (NYSE:NEM) posted a $2 billion second-quarter loss, due to the aforementioned collapse in gold prices as well as a significant impairment charge related to two of its Australian mines.
As if that weren’t bad enough, Newmont Mining Corp (NYSE:NEM) declared a $0.25 per-share dividend, down from its previous $0.35 per-share payout. That represents a 28% dividend cut.
Not surprisingly, Newmont Mining Corp (NYSE:NEM) is looking to scale back its operations as a result of the difficult marketplace. The company announced a plan to reduce its workforce by one-third. In all, cost-cuts have resulted in $362 million in savings year-to-date.
Newmont Mining Corp (NYSE:NEM) isn’t the only gold miner seeing its business dry up. Rival Goldcorp Inc. (USA) (NYSE:GG) also posted a $2 billion impairment charge in its most recent earnings report. Overall, Goldcorp Inc. (USA) (NYSE:GG)’s earnings per share shrank by nearly two-thirds, year over year.
Once again, Goldcorp Inc. (USA) (NYSE:GG) has set its sights on cost-cuts while it tries to right the ship. The company is targeting a 10% reduction in general & administrative expenses for full-year 2013.
An industry leader to consider
Newmont and Goldcorp are heavily dependent on gold prices for profitability. Gold prices have plummeted in recent months, and whether there’s further room to fall for the precious metal is impossible to predict with any certainty.