Southern Copper Corporation (NYSE:SCCO) is about to trade ex-dividend in the next 3 days. The ex-dividend date is one business day before a company's record date, which is the date on which the company determines which shareholders are entitled 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. This means that investors who purchase Southern Copper's shares on or after the 11th of August will not receive the dividend, which will be paid on the 26th of August.
The company's next dividend payment will be US$0.90 per share, on the back of last year when the company paid a total of US$2.80 to shareholders. Based on the last year's worth of payments, Southern Copper has a trailing yield of 4.3% on the current stock price of $65.41. If you buy this business for its dividend, you should have an idea of whether Southern Copper's dividend is reliable and sustainable. So we need to investigate whether Southern Copper can afford its dividend, and if the dividend could grow.
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 paid out more than half (61%) of its earnings last year, which is a regular payout ratio for most companies. A useful secondary check can be to evaluate whether Southern Copper generated enough free cash flow to afford its dividend. It paid out more than half (59%) of its free cash flow in the past year, which is within an average range for most companies.
It's encouraging to see that the dividend is covered by both profit and cash flow. This generally suggests the dividend is sustainable, as long as earnings don't drop precipitously.
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 Southern Copper has grown its earnings rapidly, up 31% a year for the past five years. Management appears to be striking a nice balance between reinvesting for growth and paying dividends to shareholders. With a reasonable payout ratio, profits being reinvested, and some earnings growth, Southern Copper could have strong prospects for future increases to the dividend.
The main way most investors will assess a company's dividend prospects is by checking the historical rate of dividend growth. Southern Copper has delivered an average of 5.2% per year annual increase in its dividend, based on the past 10 years of dividend payments. Earnings per share have been growing much quicker than dividends, potentially because Southern Copper is keeping back more of its profits to grow the business.
To Sum It Up
Has Southern Copper got what it takes to maintain its dividend payments? Higher earnings per share generally lead to higher dividends from dividend-paying stocks over the long run. However, we'd also note that Southern Copper is paying out more than half of its earnings and cash flow as profits, which could limit the dividend growth if earnings growth slows. In summary, it's hard to get excited about Southern Copper from a dividend perspective.
On that note, you'll want to research what risks Southern Copper is facing. For example, Southern Copper has 4 warning signs (and 1 which is potentially serious) we think you should know about.
If you're in the market for dividend stocks, we recommend checking our list of top dividend stocks with a greater than 2% yield and an upcoming dividend.
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This article by Simply Wall St is general in nature. 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.
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