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Steve's note: Jason Goepfert of SentimenTrader.com wrote a fantastic story last week on the blue-chip mining companies halting their dividend payments – and how that often coincides with bottoms in mining stocks. It was outstanding work, as it always is from Jason. (For more on Jason, go to www.SentimenTrader.com.)

Sign of the Bottom – Finally – in Mining Stocks

By Jason Goepfert, SentimenTrader
Monday, December 14, 2015

Conditions are bad in the mining sector...
 
Conditions are so bad that two of the leading players just resorted to the last-ditch effort of suspending their dividend payments.
 
This is an extremely rare occurrence. By the time sentiment has gotten this ugly, it has marked the final exhaustion in the last two down cycles.
 
Last week, Anglo American (LON: AAL) and Freeport-McMoRan (FCX) decided that (for the health of their companies' futures) they will stop paying dividends, cut their workforces, and try to survive.
 
Next to fraud, this is about the last thing a company wants to admit. Dividends are considered sacrosanct – especially in this market environment where it's hard to get yield anywhere else. So they must really be desperate.
 
That sounds like a bad thing, and perhaps it will be this time. But that's not what history suggests...
 
It's not the first rodeo for either of these firms. They've both suspended their dividends at least once in the past 20 years. Freeport did so on December 9, 1998 and December 3, 2008. And Anglo did it on February 20, 2009.
 
These dates roughly coincided with bottoms in metals and mining stocks, as you can see from this chart:
 

In short, by the time the companies reached this desperate measure, metals and mining stocks had already been hit extremely hard (a company will never suspend a dividend in anticipation of tough conditions).
 
By the time Freeport suspended its dividend in 1998, the S&P Metals & Mining Index was down 50% from its monthly closing high. In 2008, it was down 67%. Currently, it is down 69%.
 
That tended to be about it for the selling pressure. A month later, the Metals & Mining Index was higher by 14%, 40%, and 12%, respectively. Six months later, the returns were much better. Take a look:
 
S&P Metals & Mining Index
Signals (1995-2015) 6 Months Later 1 Year Later
1998-12-09 21.1% 31.5%
2008-12-03 74.3% 110.8%
2009-02-20 42.3% 67.4%
Mean 45.9% 69.9%
Copyright © 2015 Sundial Capital Research, www.SentimenTrader.com.

These dividend suspensions are exactly what potential shareholders should be looking for as a signal that sentiment is nearing a trough.
 
Regards,
 
Jason Goepfert




Further Reading:

"Today, sentiment is extremely negative for commodities..." Steve writes. "After a four-year bear market, investors expect the decline to continue. But that's not usually how it works..." Learn more right here.
 
Last week, Chris Mayer told readers there is a lot of upside in gold-royalty companies right now. Find out which one he recommends in particular right here: This Gold-Royalty Play Is a Buy.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
 
McDonald's (MCD)... fast food
Tyson Foods (TSN)... meat
McCormick (MKC)... spices
Campbell Soup (CPB)... soup
Dr Pepper Snapple Group (DPS)... soft drinks
National Beverage (FIZZ)... soft drinks
Snap-On (SNA)... hand tools
Clorox (CLX)... consumer basics
Costco Wholesale (COST)... membership-only bulk retailer
Activision Blizzard (ATVI)... video games
Vail Resorts (MTN)... ski-resort operator
NVR (NVR)... homebuilder
Raytheon (RTN)... "offense" contractor
Dow Chemical (DOW)... chemicals

NEW LOWS OF NOTE LAST WEEK
 
Union Pacific (UNP)... railroad
Rio Tinto (RIO)... diversified miner
Chesapeake Energy (CHK)... natural gas
Peabody Energy (BTU)... coal company
Potash Corp (POT)... fertilizer
U.S. Steel (X)... steel producer
AK Steel (AKS)... steel producer
Cummins (CMI)... diesel engines
Anadarko Petroleum (APC)... oil and gas
GoPro (GPRO)... personal cameras
American Express (AXP)... credit cards

premium teaser

300% upside in this junior gold-mining trade...
 
I was just in Vancouver a few months ago. While I was there, I talked with a number of mining companies and mining experts.
 

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