Don't Race Out To Buy Southern Copper Corporation (NYSE:SCCO) Just Because It's Going Ex-Dividend
Readers hoping to buy Southern Copper Corporation (NYSE:SCCO) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is of consequence because whenever a stock is bought or sold, the trade takes at least two business day to settle. In other words, investors can purchase Southern Copper's shares before the 12th of February in order to be eligible for the dividend, which will be paid on the 29th of February.
The company's next dividend payment will be US$0.80 per share, and in the last 12 months, the company paid a total of US$4.00 per share. Calculating the last year's worth of payments shows that Southern Copper has a trailing yield of 4.9% on the current share price of US$82.21. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. We need to see whether the dividend is covered by earnings and if it's growing.
View our latest analysis for Southern Copper
Dividends are typically paid out of company income, so if a company pays out more than it earned, its dividend is usually at a higher risk of being cut. Southern Copper distributed an unsustainably high 128% of its profit as dividends to shareholders last year. Without extenuating circumstances, we'd consider the dividend at risk of a cut. That said, even highly profitable companies sometimes might not generate enough cash to pay the dividend, which is why we should always check if the dividend is covered by cash flow. Southern Copper paid out more free cash flow than it generated - 121%, to be precise - last year, which we think is concerningly high. We're curious about why the company paid out more cash than it generated last year, since this can be one of the early signs that a dividend may be unsustainable.
Cash is slightly more important than profit from a dividend perspective, but given Southern Copper's payouts were not well covered by either earnings or cash flow, we would be concerned about the sustainability of this dividend.
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings fall far enough, the company could be forced to cut its dividend. This is why it's a relief to see Southern Copper earnings per share are up 9.5% per annum over the last five years. Earnings per share have been growing comfortably, although unfortunately the company is paying out more of its profits than we're comfortable with over the long term.
Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Southern Copper has delivered 19% dividend growth per year on average over the past 10 years. We're glad to see dividends rising alongside earnings over a number of years, which may be a sign the company intends to share the growth with shareholders.
The Bottom Line
From a dividend perspective, should investors buy or avoid Southern Copper? Southern Copper is paying out an uncomfortably high percentage of both earnings and cash flow as dividends, although at least earnings per share are growing somewhat. Overall it doesn't look like the most suitable dividend stock for a long-term buy and hold investor.
So if you're still interested in Southern Copper despite it's poor dividend qualities, you should be well informed on some of the risks facing this stock. To help with this, we've discovered 2 warning signs for Southern Copper (1 is concerning!) that you ought to be aware of before buying the shares.
Generally, we wouldn't recommend just buying the first dividend stock you see. Here's a curated list of interesting stocks that are strong dividend payers.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
