Monday 22 February 2021

Gold - and income?

There is some logic in having gold in your portfolio. It’s smart to own assets that are uncorrelated—in other words, that move up and down in different, or even opposite, ways as the market fluctuates. And gold behaves differently to both equities and bonds. 

However, finding the right options in the London market requires a little work.
The trouble with holding physical gold - or a gold ETF - for a DIY Income Investor is the lack of income. For example, iShares Physical Gold ETF pays no dividend - while it has gone up and down in value over the last year. Likewise, although gold miner ETFs have a  dividend (which is relatively low), most are 'accumulation' ETFs that don't have regular payouts - for example, Vaneck Vector Gold Miners ETF (GDGB)

Investing in individual shares of gold miners may produce a better income profile - but at the risk of other hazards. Having said that, many of the precious metal miners have low or zero dividends, unfortunately e.g.:
  • Fresnillo, a mainly silver miner
  • Petropavlovsk, focused on Russia
  • Hochschild Mining, with an emphasis on silver
  • SolGold, an Australian gold and copper mining company
  • Greatland Gold, which is focused on gold mining in Australia
  • Chaarat Gold Holdings, which operates in the Kyrgyz RepublicShanta Gold, which focuses on gold in Tanzania.

However, a couple of gold miners DO offer a reasonable dividend, which would capture both the advantages of gold AND offer a reasonable income.

The largest of these is  Polymetal International (POLY), a gold and silver miner based in Russia and Kazakhstan. The company is serious about dividends, as shown by the declarations on their websiteShares magazine article has more on the company and their new dividend policy.

The dividend yield is a reasonable 4.2%, with a dividend cover of nearly 1.9%. Polymetal International has a history of increased its dividend payout over the decade. The main downside of the share is that this is Russian - with all the uncertainties for corporate governance and national rule of law that this entails. 

Another possibilities include:

So that seems to be the option - either accept a diversified gold ETF with no income - or individual securities with income and no diversification. What one would you choose?

I am not a financial adviser and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.

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