Southern Copper's Dividend X-Ray

Not all dividends are created equal. Here, we'll do a top-to-bottom analysis of a company to understand the quality of its dividend and see how that's changed over the past five years.

The company we're looking at today is Southern Copper (NYSE: SCCO  ) , which yields 7.8%.

To evaluate the quality of a dividend, the first thing to consider is whether the company has paid a dividend consistently over the past five years and, if so, how much has it grown.

Southern Copper Corporation Dividend Chart

Southern Copper Corporation Dividend Chart by YCharts

Southern Copper's dividend dipped with the financial crisis but has since come back strong.

Immediate safety
To understand how safe a dividend is, we use two crucial tools, the first of which is:

  • The interest coverage ratio, or the number of times interest is earned, which is calculated by earnings before interest and taxes, divided by interest expense. The interest coverage ratio measures a company's ability to pay the interest on its debt. A ratio less than 1.5 is questionable; a number less than 1 means the company is not bringing in enough money to cover its interest expenses.
Southern Copper Corporation Times Interest Earned TTM Chart

Southern Copper Corporation Times Interest Earned TTM Chart by YCharts

Southern Copper covers every $1 in interest expense with more than $18 in operating earnings.

The other tool we use to evaluate the safety of a dividend is:

  • The EPS payout ratio, or dividends per share divided by earnings per share. The EPS payout ratio measures the percentage of earnings that go toward paying the dividend. A ratio greater than 80% is worrisome.

Source: S&P Capital IQ.

Southern Copper's payout ratio spiked with the financial crisis before the company cut its dividend. The payout ratio now sits at a high 80%.

Another tool for better investing
Most investors don't keep tabs on their companies. That's a mistake. If you take the time to read past the headlines and crack a filing now and then, you're in a much better position to spot potential trouble early. We can help you keep tabs on your companies with My Watchlist, our free, personalized stock-tracking service.

For more dividend stock ideas, get The Motley Fool's free report "11 Rock-Solid Dividend Stocks."

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Read/Post Comments (4) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 29, 2012, at 8:00 PM, PuddinHead42 wrote:

    Many foreign companies intentionally pay out dividends at a high ratio to earnings. Their goal is to maximize dividend payouts not build piles of cash or buy back stocks. Most American dividend payers want to have a stable payout, it is important to understand the rational behind dividend payouts before investing.

  • Report this Comment On January 30, 2012, at 9:30 PM, GW1000 wrote:

    Southern Copper severly slashed its quarterly dividend today, from $.70 to $.19. Anyone know why? I did not see this coming.

  • Report this Comment On January 31, 2012, at 8:53 AM, dave22q wrote:

    i was also suprised by the dramatic dividend slash. don't know what to make of the tiny 1 for 100 stock dividend either. called them and got doubletalk on an earnings report or call. i hate to react to partial information and i still like the mineral but this stock has become risky. i dumped it.

  • Report this Comment On February 23, 2012, at 2:35 PM, IlluminatInvest wrote:

    Dave, that "tiny" stock dividend is worth 36 cents a share, so their total payout is now 55 cents, so not as much of a dividend "slash" as everyone thinks.

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10/25/2016 4:02 PM
SCCO $28.04 Up +0.34 +1.23%
Southern Copper CAPS Rating: ****