Southern Copper (NYSE:SCCO) Has Announced That It Will Be Increasing Its Dividend To $1.00

Southern Copper Corporation's (NYSE:SCCO) periodic dividend will be increasing on the 22nd of November to $1.00, with investors receiving 100% more than last year's $0.50. This will take the dividend yield to an attractive 5.0%, providing a nice boost to shareholder returns.

See our latest analysis for Southern Copper

Southern Copper Is Paying Out More Than It Is Earning

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. At the time of the last dividend payment, Southern Copper was paying out a very large proportion of what it was earning and 102% of cash flows. Paying out such a high proportion of cash flows certainly exposes the company to cutting the dividend if cash flows were to reduce.

Over the next year, EPS is forecast to expand by 11.3%. Assuming the dividend continues along recent trends, we think the payout ratio could reach 111%, which probably can't continue without putting some pressure on the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least one cut in the last 10 years. The annual payment during the last 10 years was $0.68 in 2013, and the most recent fiscal year payment was $3.50. This means that it has been growing its distributions at 18% per annum over that time. Despite the rapid growth in the dividend over the past number of years, we have seen the payments go down the past as well, so that makes us cautious.

Dividend Growth Could Be Constrained

Given that the dividend has been cut in the past, we need to check if earnings are growing and if that might lead to stronger dividends in the future. Southern Copper has seen EPS rising for the last five years, at 23% per annum. Fast growing earnings are great, but this can rarely be sustained without some reinvestment into the business, which Southern Copper hasn't been doing.

The Dividend Could Prove To Be Unreliable

In summary, while it's always good to see the dividend being raised, we don't think Southern Copper's payments are rock solid. While we generally think the level of distributions are a bit high, we wouldn't rule it out as becoming a good dividend payer in the future as its earnings are growing healthily. This company is not in the top tier of income providing stocks.

Market movements attest to how highly valued a consistent dividend policy is compared to one which is more unpredictable. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For example, we've identified 3 warning signs for Southern Copper (2 can't be ignored!) that you should be aware of before investing. Is Southern Copper not quite the opportunity you were looking for? Why not check out our selection of top dividend stocks.

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