Southern Copper Corporation (NYSE:SCCO) announced on Tuesday, November 22nd, a bold move to double its dividend from $0.50 to $1.00, setting the annual payment at 5% of the stock price. This increase surpasses most industry peers, but it brings with it a considerable risk as dividends have been absorbing a large portion of earnings and cash flows (102%).
The company's projected earnings per share (EPS) growth of 11.3% in the next year could push the payout ratio to an alarming 111%, potentially straining the balance sheet. In the past decade, Southern Copper has experienced instability, including at least one dividend cut. A decrease in cash flows could necessitate another dividend cut, adding to this instability.
Despite these potential risks, Southern Copper's dividends have seen significant growth over the past decade. Since 2013, they have grown from $0.68 to $3.50 annually, marking an impressive 18% per annum growth rate. However, this rapid growth and past cuts raise concerns about future reliability.
The company's EPS has also been growing at an impressive rate of 23% annually for the past five years. Yet, the high proportion of profits paid as dividends may limit future growth.
Southern Copper's recent dividend increase is noteworthy, but its sustainability is questionable given high distribution levels and an unstable history. This poses a risk of balance sheet strain and constrained future growth.
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