The big boys pay more: Barrick and Newmont boost dividends.

Despite record high gold prices the companies’ that mine the metal have been slow to receive valuations that reflect the cashflows pouring on to their financial statements.

The two biggest gold miners in the world, Barrick Gold (ABX-T, ABX-N) and Newmont Mining (NMC-T, NEM -N) have a simple solution: If the markets won’t value their future cashflows adequately, they’ll simply pay more cash out to investors to entice demand.

Both companies’ announced significant boosts to their dividends on Oct. 26, with the Barrick increase ringing in at 25% while Newmont is growing its cash payout by 17%.

The move reflects the new reality that gold miners find themselves in: With so much global uncertainty affecting equity evaluations across the board, miners are offering more income to investors at a time when cash-in-hand feels more secure than cash in a company’s coffers.

Of course the big knock against dividends is that companies’ with strong growth profiles should be plowing retained earnings back into projects that will continue to grow profits for investors. That is why dividends have long been the tool of large blue chip companies in the latter stages of their life cycle when investment opportunities that add significantly to the bottom line become few and far between.

So while Barrick says strong earnings and operating cash flows allow it to make high return investments in its project pipeline and also increase its dividend, it isn’t too much of a stretch to infer that they wouldn’t be so eager to return cash to investors if there were a wealth of large scale, profitable projects, calling out for investment dollars.

With the increase the Barrick dividend will now come in at US$0.15 per share. Over the last five years the company has increased its dividend by more than 170%.

But, unlike Newmont, Barrick’s dividend is not fixed and will remain at the discretion of its Board.

The move by Newmont brings its quarterly dividend to US$0.35 per share from the US$0.30, and continues its trend as since the fourth quarter of 2010 it has increased dividend payments by 133%.

The company has a gold price-linked dividend that bases the dividend on the preceding quarters gold price. The policy has led to it having one of the highest yielding dividend payouts amongst gold miners at roughly 2%. Most other gold miner’s that pay dividends have yields between 0.5 and 1.5%.

Newmont said its third quarter average realized gold price of US$1,695 per oz.

The moves by the two companies did have a positive effect on their respective stock prices.

Barrick’s share price began to move from the $44.10 level on Oct. 20, presumably in anticipation of the dividend announcement, and closed at $48.19 – an increase of 9% – on Oct. 26.

Newmont’s shares made a similar move over that time period, from $62.22 to a $66.86 – an increase of 8%.

Other precious metal miners with price linked dividends include Eldorado Gold (ELD-T, EGO-N) and Hecla Mining (HL-N), which has a silver price-linked dividend.