Investments in Dividend Paying Mining Stocks
When one considers an investment in dividend- paying mining stocks it is usually all a question of price ; not entirely so, however, because it sometimes happens that wideiy advertised offerings of dividend-paying mining stocks turn out to be the worst kind of swindles; the dividend, so called, being simply repayments of a small proportion of the money received from the sale of stock. This is a thoroughly dishonest practice and one distinctly forbidden by the law; it is done, however, and there are many subterfuges to hide the real character of the payment. A common form is for the promoters to make transactions among themselves which will show a paper profit and then declare a dividend, but in reality pay it only to a portion of the stock, that is to a few shares which they may have sold; the amount required is not large, because only a few shares have been disposed of and the stock which they hold really receives no dividend, the promoters sign a receipt for it, and to all appearance it has been paid. On the strength of this dividend the stock becomes salable, and presently when the promoters have sold what they consider sufficient, the stock is left to shift for itself and no more dividends are paid. Under one form or another, with better or more crude concealment and manipulation, this game is being frequently worked, and many are defrauded by it. The means by which an investor can protect himself are very simple. If a property is really earning dividends active operations must be in progress at the mines, and accounts of sales of ore will be in evidence ; or returns from bullion, metal or mineral sales will be at hand and there will be some system of bookkeeping. A company honestly managed should make no objection to submitting proofs that its dividends are really earned, and where objection is made one can refrain from investing. The same care should be taken in looking up the standing of officers and of the enterprise itself, as would be taken if it were an untried speculative venture ; and where it is found that the enterprise is in the hands of questionable people it should be let alone, no matter how much may be paid in dividends, no matter how active the stock may be in the public markets; such activity is no criterion of real conditions, and may be entirely the outcome of clever manipulations on the part of the promoters. There is just one thing for an investor to do in relation to a proposition found in the hands of people of questionable reputation, and that is, let it alone.
When it is found, however, that a property is really in operation, and is earning dividends, then it may be a very attractive proposition for an investment, but it is all in the price. A mining stock should pay a high rate of dividend, because if an investor does not get his money back, and a profit out of the dividends, the investment is a loss to him. The reason is that all mines must come to an end some time, even the greatest, and when the end has been reached, and all the are taken out, the mine is worthless. The question is, how long can the mine keep on paying dividends, and how far away is the period when it will be worked out and worthless? The world is full of worked out mines, and as all must come to an end the investor should consider the end, not the present of a mining investment.
If a stock is bought at a price which will net the investor twenty per cent, a year in dividends, the rate would certainly look attractive. But the rate of dividend alone is not sufficient to warrant an investment, one must be reasonably sure that the mine contains mineral enough to keep the dividend payments going for a period sufficiently long to return the money invested and yield a profit. At twenty per cent, per annum one's money will be returned in five years, at ten per cent, per annum one's money will be returned in ten years, and at five per cent, per annum the money will have to remain out. for twenty years before there is any profit, and only a few mines have paid for so long a period.
