Southern Copper (NYSE:SCCO) Could Be A Buy For Its Upcoming Dividend

It looks like Southern Copper Corporation (NYSE:SCCO) is about to go ex-dividend in the next four days. Typically, the ex-dividend date is one business day before the record date, which is the date on which a company determines the shareholders eligible to receive a dividend. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. This means that investors who purchase Southern Copper's shares on or after the 15th of August will not receive the dividend, which will be paid on the 4th of September.

The company's next dividend payment will be US$0.80 per share. Last year, in total, the company distributed US$3.20 to shareholders. Calculating the last year's worth of payments shows that Southern Copper has a trailing yield of 3.2% on the current share price of US$100.10. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. That's why we should always check whether the dividend payments appear sustainable, and if the company is growing.

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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. Southern Copper paid out 59% of its earnings to investors last year, a normal payout level for most businesses. A useful secondary check can be to evaluate whether Southern Copper generated enough free cash flow to afford its dividend. Dividends consumed 61% of the company's free cash flow last year, which is within a normal range for most dividend-paying organisations.

It's positive to see that Southern Copper's dividend is covered by both profits and cash flow, since this is generally a sign that the dividend is sustainable, and a lower payout ratio usually suggests a greater margin of safety before the dividend gets cut.

See our latest analysis for Southern Copper

Click here to see the company's payout ratio, plus analyst estimates of its future dividends.

Have Earnings And Dividends Been Growing?

Businesses with strong growth prospects usually make the best dividend payers, because it's easier to grow dividends when earnings per share are improving. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. Fortunately for readers, Southern Copper's earnings per share have been growing at 19% a year for the past five years. Southern Copper has an average payout ratio which suggests a balance between growing earnings and rewarding shareholders. This is a reasonable combination that could hint at some further dividend increases in the future.

Another key way to measure a company's dividend prospects is by measuring its historical rate of dividend growth. Since the start of our data, 10 years ago, Southern Copper has lifted its dividend by approximately 22% a year on average. Both per-share earnings and dividends have both been growing rapidly in recent times, which is great to see.

Final Takeaway

Is Southern Copper an attractive dividend stock, or better left on the shelf? It's good to see earnings are growing, since all of the best dividend stocks grow their earnings meaningfully over the long run. That's why we're glad to see Southern Copper's earnings per share growing, although as we saw, the company is paying out more than half of its earnings and cashflow - 59% and 61% respectively. Overall we're not hugely bearish on the stock, but there are likely better dividend investments out there.

While it's tempting to invest in Southern Copper for the dividends alone, you should always be mindful of the risks involved. Our analysis shows 1 warning sign for Southern Copper and you should be aware of this before buying any 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.