Investing in Pure Play Dividend Paying Copper Stocks
Commodity prices are making headlines on a daily basis. With the constant chatter about deflation as oil prices continue to tumble as well as iron ore, hogs, wheat and copper to name a few, one must ask if we are sitting on one of the greatest pre-inflationary moments in time where lower commodity prices along with a strong dollar can prove to be a perfect time to load up on some these beaten down commodities and stocks.
Clearly, among the dividend blogging community many have already loaded up on several energy names anticipating a moment in the future when oil will rise again lifting their investments in the sector. A frequent statement that I read among the dividend blogging members is the fact that many have become overweight in the oil space as this single commodity has grabbed the attention of mass media and has become over allocated in many dividend portfolios. A few weeks ago I wrote an article highlighting many pure play iron and steel companies to offer a suggested commodity alternative to energy heavy portfolios as these companies, like all the energy names, have dropped considerably in price and all pay dividends as well. One must realize that deflationary pressure has been occurring in many other commodities even though oil has grabbed most of the attention. Copper is one of those commodities that has recently dropped tremendously as global demand for this metal is predicting an imminent worldwide economic slowdown. For this reason, copper has received the moniker, Dr. Copper as a predictive force for current and future global economic activity. Of course, with a drop in commodity price comes a drop in the stocks that are tied to that specific commodity. With that being said I’d like to review several pure play dividend paying copper stocks that might find a place in your dividend portfolio as depressed copper prices have brought about depressed copper stock prices as well.
First, up is Freeport-McMoRan Inc. (FCX). Headquartered in Phoenix, AZ, FCX primarily explores for copper with significant operations in gold, molybdenum, cobalt, silver and other base metals as well as oil and gas. Currently yielding a very high 6.50% with a moderately high payout ratio of 61.0% based on an EPS of 2.15 the dividend appears to be safe based on current cash flow. FCX also has a decent ten year annualized dividend growth rate of 8.57% though going forward, in the current economic climate, I would not expect significant dividend raises. I guess the trade off for dividend growth is a high current yield with this stock. On a valuation basis, FCX has a current PE of 8.93 which is lower that its five year average PE of 11.2 and the S&P. On a forward PE basis the stock looks even cheaper at 6.4.
Next, is Nevsun Resources Ltd. (NSU). A relative newcomer in terms of being a dividend payer, NSU, headquartered in Vancouver, Canada is involved in the exploration for copper, gold, silver, and zinc deposits. Another relative high yielding play at 4.55% with a relatively low payout ratio of 28.6% based on an EPS of 0.34 this dividend also appears to be safe based on current cash flow. With a current PE of 10.48 and a forward PE of 13.1, NSU is considered relatively cheap based on its five year average PE and relative to the market as whole. Again, the evidence of this beaten down sector is apparent just as with oil and iron ore.
Finally, we have Southern Copper Corp. (SCCO). Based in based in Phoenix, AZ, SCCO is involved in the mining, exploring, smelting and refining of copper and other copper ore byproducts such as gold, silver and molybdenum primarily in the Latin American countries of Peru, Mexico, Argentina, Chile, and Ecuador. Currently yielding a relatively low 1.70% with a moderately low payout ratio of 30.6% based on an EPS of 1.67, this too is a seemingly safe dividend in the copper sector. While not considered a stellar dividend grower having a ten year annualized dividend growth rate of just 1.44%, SCCO has managed to pay out dividend distributions for about twenty years without interruption. From a valuation perspective, SCCO has a current PE of 16.26 which is in line with its five year average and has a forward PE of 22.10. While cheaper than the market as a whole, SCCO may not be the best value of the three copper plays mentioned here.
Even pure play copper stocks share in other metals and commodity price swings as tag-a-long metals such as gold, silver and molybdenum are found together with copper ores. For those looking to diversify out of energy names, copper may present another deflationary commodity play similar to oil that can pay great dividends while you wait for global demand to pick up once again.
Are any of these copper names in your dividend portfolio? What do you think about investing in other depressed commodities besides oil? Please let me know below.
Disclosure: Long NONE