Southern Copper (NYSE:SCCO) Is Increasing Its Dividend To US$1.00

The board of Southern Copper Corporation (NYSE:SCCO) has announced that it will be increasing its dividend on the 23rd of November to US$1.00. This will take the annual payment to 5.2% of the stock price, which is above what most companies in the industry pay.

View our latest analysis for Southern Copper

Southern Copper Doesn't Earn Enough To Cover Its Payments

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. The last payment was quite easily covered by earnings, but it made up 96% of cash flows. While the company may be more focused on returning cash to shareholders than growing the business at this time, we think that a cash payout ratio this high might expose the dividend to being cut if the business ran into some challenges.

Earnings per share is forecast to rise by 11.5% over the next year. Assuming the dividend continues along recent trends, we think the payout ratio could reach 104%, which probably can't continue putting some pressure on the balance sheet.

Dividend Volatility

The company's dividend history has been marked by instability, with at least 1 cut in the last 10 years. The dividend has gone from US$1.68 in 2011 to the most recent annual payment of US$3.60. This implies that the company grew its distributions at a yearly rate of about 7.9% over that duration. We like to see dividends have grown at a reasonable rate, but with at least one substantial cut in the payments, we're not certain this dividend stock would be ideal for someone intending to live on the income.

The Dividend Looks Likely To Grow

With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. It's encouraging to see Southern Copper has been growing its earnings per share at 38% a year over the past five years. Southern Copper is clearly able to grow rapidly while still returning cash to shareholders, positioning it to become a strong dividend payer in the future.

In Summary

Overall, we always like to see the dividend being raised, but we don't think Southern Copper will make a great income stock. While Southern Copper is earning enough to cover the payments, the cash flows are lacking. We would be a touch cautious of relying on this stock primarily for the dividend income.

It's important to note that companies having a consistent dividend policy will generate greater investor confidence than those having an erratic one. At the same time, there are other factors our readers should be conscious of before pouring capital into a stock. Case in point: We've spotted 4 warning signs for Southern Copper (of which 1 is significant!) you should know about. If you are a dividend investor, you might also want to look at our curated list of high performing dividend stock.

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.

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