Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Magic Copper Yields

Three years ago, when copper prices ran low and its own prospects lower, Phelps Dodge (NYSE: PD  ) suspended its dividend. It was the right thing to do, even if it amounted to just $40 million in annual savings. At a time when the company was laying off employees and scaling back its copper production, the dividend cut sent the message that it was serious about conserving its capital.

Meanwhile, the price of copper has bounced back -- and with it, the company's prospects. True to its word, with mining stocks marching back, and after earning $185.7 million in profits this past quarter, Phelps Dodge is bringing back its $0.25 quarterly dividend.

Ironically, the announcement came just hours after Morgan Stanley (NYSE: MWD  ) lowered its outlook on the company. But, just like its retraction in 2001, this is a strong statement from the gritty throat of Phelps Dodge: It is upbeat enough about the future to start rewarding its shareholders with pocket change every three months.

While that may pique the interest of dividend-hungry Income Investor subscribers, it can't be stressed enough that this is a cyclical industry, and that the company has made it clear through past actions that dividends are on the block when the spigot of cash flow runs dry.

Whether dividends are the last line of a company's defense -- or the first to buckle -- it goes without saying that a company needs to make money to pay money. When troubled natural gas specialist NUI (NYSE: NUI  ) suspended its dividend last month, it shouldn't have come as a surprise after a string of losses. Not making enough dough at Interstate Bakeries (NYSE: IBC  ) ? Snip. The dividend's gone.

That's why it's not all that safe to approach Phelps Dodge for its payout right now. That time is probably better spent looking at companies that have produced steadier results with a history of hiking their distributions. After all, that's where the real digging for coppers takes place.

Despite its name, income investing is perhaps the greatest means of building wealth for the long term. Take a free trial of Motley Fool Income Investor to get started.

Longtime Fool contributor Rick Munarriz has never been inside a copper mine though he once found a penny on the ground and shouted "Mine!" He does not own shares in any of the companies in this story.

Read/Post Comments (0) | Recommend This Article (0)

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.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 508210, ~/Articles/ArticleHandler.aspx, 10/22/2016 6:12:36 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 20 hours ago Sponsored by:
DOW 18,145.71 -16.64 -0.09%
S&P 500 2,141.16 -0.18 -0.01%
NASD 5,257.40 15.57 0.30%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes