My High Dividend Stocks Blog: Don't be fooled by Southern Copper's 8% dividend yield. Copper and Southern Copper are going down.

Friday, August 12, 2011

Don't be fooled by Southern Copper's 8% dividend yield. Copper and Southern Copper are going down.

Southern Copper (SCCO) will go ex-dividend on Monday, but that is not the whole story. The stock price will drop after the dividend and it will likely keep going down.

Southern Copper Stock To Go Ex-dividend Monday (SCCO)

By TheStreet Wire 08/12/11 - 09:52 AM EDT

NEW YORK (TheStreet) -- The ex-dividend date for Southern Copper Corporation (NYSE:SCCO) is Monday, August 15, 2011. Owners of shares as of market close today will be eligible for a dividend of 62 cents per share. At a price of $31.41 as of 9:30 a.m. ET, the dividend yield is 8.5%.

The average volume for Southern Copper has been 3.5 million shares per day over the past 30 days. Southern Copper has a market cap of $24.7 billion and is part of the basic materials sector and metals & mining industry. Shares are down 36.8% year to date as of the close of trading on Thursday.

Southern Copper Corporation engages in mining, smelting, and refining mineral properties in Peru, Mexico, and Chile. The company has a P/E ratio of 12.4, equal to the average metals & mining industry P/E ratio and below the S&P 500 P/E ratio of 17.7.

* * * * * * *

Copper is an industrial metal that goes up in price during a global booms. When the global economy busts the copper price goes down. There was a bust in 2008 and then a false recovery 2009-2011. Investors are beginning to realize that the bust must continue in order to liquidate all the malinvestments made during the boom. Governments and central banks are hell bent on preventing the markets from liquidating those malinvestments quickly. They will continue to implement policies that forestall and jeopardize a real recovery. Southern Copper will suffer as a result.

If you buy, then know that you will be buying on the way down. I expect a dividend cut. This company will remain a high dividend stock after it cuts its dividend because the stock price will be falling with the copper commodity price. Copper peaked in January 2011 at $4.64 per pound. It is down to $4.05 now and grinding lower on the realization of a “global double-dip recession”. Don’t be fooled by Southern Copper’s 8+% dividend yield.

Consider buying below $23.04 and sell it above $38.40. The dividend is in jeopardy due to its dividend payout ratio exceeding 100%. Its balance sheet is stagnant.