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Southern Copper Declares Quarterly Dividend

- By Alberto Abaterusso

Mining company Southern Copper Corp. (SCCO) announced its quarterly dividend payment on Thursday.

A quarterly dividend of 40 cents will be paid to shareholders on Nov. 21. Investors must be on the company's record no later than Nov. 7 to qualify. The ex-dividend date is Nov. 6. The dividend is in line with the previous payments and represents a 60% increase from the prior-year quarter.

As a result of declining commodity prices, Southern Copper is down on the New York Stock Exchange. For the 52 weeks through Oct. 18, the stock has fallen 7% to $40 share. Over the same period, copper futures lost 13% to $6,131.25 per metric ton. The sharpest depreciation is from mid-June, with copper down 14.4%, and Southern Copper down nearly 20%.

The stock is now trading below the 200-, 100- and 50-day simple moving average lines. The share price at close on Thursday is slightly above the 52-week low of $39.18 and 45.2% below the 52-week high of $58.09. The 14-day relative strength index is 34.74, meaning the stock has almost reached oversold levels and may see a reversal to the upside soon.

The price-book ratio is 4.72 versus an industry median of 1.74 and the enterprise value-to-earnings before interest, taxes, depreciation and amortization ratio is 9.57 compared to an industry median of 9.3.

The dividend yield is 3.13% versus an industry median of 1.52%. If the dividend is held constant, it will lead to a forward dividend yield of 3.82% compared to an industry median of 3.36%. Provided the commodity trades high enough to support the business, investing in the mining company is convenient today because the stock is beating the S&P 500 index and the five-year high-quality market corporate bond spot rate in terms of a higher yield. Shareholders of the S&P 500 index are being granted with a dividend yield of 1.89% as of Oct. 18 and the holders of the five-year bond are enjoying a monthly spot rate of 3.42% as of August.

According to GuruFocus, the trailing 12-month period through the second quarter has been highly profitable for Southern Copper as a result of copper trading more than 9% higher on average. With a trailing 12-month EBITDA margin of 52%, however, the company has outperformed the industry, which has a median of 23% for the same period.

Looking ahead, the stock price will be boosted by higher throughput and grades of ore to process in Peru, which will continue supporting net profit, sales and cash flows. As a result, the company should also continue to benefit from a rise in byproduct revenues. In addition, cost efficiencies and enhanced copper production following the completion of the Toquepala expansion project in Peru are providing analysts with another reason to consider the stock.

Thanks to the Peruvian project, the company's annual production of copper should be expanded by 100,000 tons by 2019. Toquepala will bring Southern Copper's total production to 1 million pounds annually.

The recommendation rating is 3.4 out of a total of 5. As of October, two analysts suggest buying the stock, five recommend holding and one analyst thinks it is time to sell. There are also four analysts who foresee an underperforming stock over the next 52 weeks of trading.

The average target price is $45.86 per share, 14.7% upside from the closing price on Thursday. The average target price is a mean of seven analysts' recommendations. The estimates range between a low of $41 and a high of $52 per share.

For the third quarter, revenues are projected to be $1.84 billion, representing a 9.7% increase from the prior-year quarter. At 53 cents per share, net earnings are predicted to be one-cent higher than the same quarter of 2017.

Estimates for full fiscal 2018 indicate earnings of $2.31 per share, which is an 145.7% increase year over year, on total revenues of $7.46 billion. Revenue is forecasted to grow 12.1%.

Southern Copper is a Mexican mining company that operates mines and facilities in South America, Peru and Mexico. The company also produces zinc and silver.

However, the sale of copper accounts for approximately 85% of Southern Copper's total revenue. Over the last five fiscal years, the company saw the annual production increase at an average rate of 10.8% per year to 913,066 tons of concentrate in 2017.

The stock has a market capitalization of approximately $31 billion. Institutions hold 6.81% of total shares outstanding and insiders hold 0.47%.

Among the top fund holders, Capital World Investors is the most prominent with 0.59% of total shares outstanding. ACADIAN ASSET MANAGEMENT LLC holds 0.45%, Impala Asset Management LLC holds 0.2% and ARROWSTREET CAPITAL LIMITED PARTNERSHIP holds 0.16%.

Disclosure: I have no positions in Southern Copper Corp., in copper futures nor in any other security I may have mentioned in this article.

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This article first appeared on GuruFocus.