Southern Copper’s (NYSE:SCCO) Shareholders Will Receive A Smaller Dividend Than Last Year

Southern Copper Corporation (NYSE:SCCO) has announced that on 23rd of November, it will be paying a dividend of$0.50, which a reduction from last year’s comparable dividend. However, the dividend yield of 6.2% is still a decent boost to shareholder returns.

View our latest analysis for Southern Copper

Southern Copper Doesn’t Earn Enough To Cover Its Payments

A big dividend yield for a few years doesn’t mean much if it can’t be sustained. Before making this announcement, the company’s dividend was higher than its profits, and made up 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.

EPS is set to fall by 2.1% over the next 12 months. 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.

historic-dividendDividend Volatility

Although the company has a long dividend history, it has been cut at least once in the last 10 years. Since 2012, the annual payment back then was $2.46, compared to the most recent full-year payment of $3.00. This implies that the company grew its distributions at a yearly rate of about 2.0% over that duration. Modest growth in the dividend is good to see, but we think this is offset by historical cuts to the payments. It is hard to live on a dividend income if the company’s earnings are not consistent.

Southern Copper’s Dividend Might Lack Growth

With a relatively unstable dividend, it’s even more important to see if earnings per share is growing. We are encouraged to see that Southern Copper has grown earnings per share at 24% per year over the past five years. While EPS is growing rapidly, Southern Copper paid out a very high 110% of its income as dividends. If earnings continue to grow, this dividend may be sustainable, but we think a payout this high definitely bears watching.

The Dividend Could Prove To Be Unreliable

Overall, the dividend looks like it may have been a bit high, which explains why it has now been cut. 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. We would be a touch cautious of relying on this stock primarily for the dividend income.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Still, investors need to consider a host of other factors, apart from dividend payments, when analysing a company. As an example, we’ve identified 2 warning signs for Southern Copper that you should be aware of before investing. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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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By Matt Earle

Matthew Earle is the Founder of MiningFeeds. In 2005, Matt founded MiningNerds.com to provide data and information to the mining investment community. This site was merged with Highgrade Review to form MiningFeeds. Matt has a B.Sc. degree with a minor in geology from the University of Toronto.

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