Some investors rely on dividends for growing their wealth, and if you're one of those dividend sleuths, you might be intrigued to know that Freeport-McMoRan Inc. (NYSE:FCX) is about to go ex-dividend in just four days. The ex-dividend date is usually set to be one business day before the record date which is the cut-off date on which you must be present on the company's books as a shareholder in order to receive the dividend. It is important to be aware of the ex-dividend date because any trade on the stock needs to have been settled on or before the record date. Accordingly, Freeport-McMoRan investors that purchase the stock on or after the 14th of July will not receive the dividend, which will be paid on the 2nd of August.
The company's upcoming dividend is US$0.075 a share, following on from the last 12 months, when the company distributed a total of US$0.30 per share to shareholders. Looking at the last 12 months of distributions, Freeport-McMoRan has a trailing yield of approximately 0.9% on its current stock price of $34.69. 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.
Dividends are usually paid out of company profits, so if a company pays out more than it earned then its dividend is usually at greater risk of being cut. Freeport-McMoRan has a low and conservative payout ratio of just 6.1% of its income after tax. 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.
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 business enters a downturn and the dividend is cut, the company could see its value fall precipitously. It's encouraging to see Freeport-McMoRan has grown its earnings rapidly, up 66% a year for the past five years. Freeport-McMoRan looks like a real growth company, with earnings per share growing at a cracking pace and the company reinvesting most of its profits in the business.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Freeport-McMoRan's dividend payments per share have declined at 6.7% per year on average over the past 10 years, which is uninspiring. Freeport-McMoRan is a rare case where dividends have been decreasing at the same time as earnings per share have been improving. It's unusual to see, and could point to unstable conditions in the core business, or more rarely an intensified focus on reinvesting profits.
To Sum It Up
Has Freeport-McMoRan got what it takes to maintain its dividend payments? Freeport-McMoRan has grown its earnings per share while simultaneously reinvesting in the business. Unfortunately it's cut the dividend at least once in the past 10 years, but the conservative payout ratio makes the current dividend look sustainable. Overall we think this is an attractive combination and worthy of further research.
While it's tempting to invest in Freeport-McMoRan for the dividends alone, you should always be mindful of the risks involved. Every company has risks, and we've spotted 4 warning signs for Freeport-McMoRan (of which 1 is significant!) you should know about.
A common investment mistake is buying the first interesting stock you see. Here you can find a list of promising dividend stocks with a greater than 2% yield and an upcoming dividend.
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