Southern Copper (NYSE:SCCO) Is Reducing Its Dividend To $0.50

Southern Copper Corporation's (NYSE:SCCO) dividend is being reduced from last year's payment covering the same period to $0.50 on the 23rd of November. This means the annual payment is 6.2% of the current stock price, which is above the average for the industry.

Check out the opportunities and risks within the US Metals and Mining industry.

Southern Copper Doesn't Earn Enough To Cover Its Payments

Impressive dividend yields are good, but this doesn't matter much if the payments can't be sustained. Prior to this announcement, the company was paying out 110% of what it was earning and 86% of cash flows. While the cash payout ratio isn't necessarily a cause for concern, the company is probably focusing more on returning cash to shareholders than growing the business.

Looking forward, earnings per share is forecast to fall by 2.1% over the next year. If the dividend continues along the path it has been on recently, the payout ratio in 12 months could be 129%, which is definitely a bit high to be sustainable going forward.

Dividend Volatility

The company has a long dividend track record, but it doesn't look great with cuts in the past. Since 2012, the annual payment back then was $2.46, compared to the most recent full-year payment of $3.00. This works out to be a compound annual growth rate (CAGR) of approximately 2.0% a year over that time. We're glad to see the dividend has risen, but with a limited rate of growth and fluctuations in the payments the total shareholder return may be limited.

Southern Copper Might Find It Hard To Grow Its Dividend

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. It's encouraging to see that Southern Copper has been growing its earnings per share at 24% a year over the past five years. Although earnings per share is up nicely Southern Copper is paying out 110% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

The Dividend Could Prove To Be Unreliable

Overall, it's not great to see that the dividend has been cut, but this might be explained by the payments being a bit high previously. Strong earnings growth means Southern Copper has the potential to be a good dividend stock in the future, despite the current payments being at elevated levels. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. However, there are other things to consider for investors when analysing stock performance. As an example, we've identified 2 warning signs for Southern Copper 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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