Happy Monday and its time to lay the copper pipes to increase our dividends. Raw materials have been hit hard. Between the strong US$ and weakness in China, a lot of raw materials are down in price. We have been building and making stuff like buildings for a long time. With the earliest pyramids being built around 2630-2611 BC to today with everything world builds, I do not see us stopping anytime soon. Today’s weakness is allowing us to buy a copper mining company for a cheap value. Today we bought Southern Copper (SCCO) as our copper producing company.
Southern Copper (SCCO) is headquartered at Phoenix, AZ. They were incorporated in 1952. They have copper mines in Argentina, Chile, Ecuador, Mexico, and Peru. So this company will give us some diversification in these countries even though they are US-based. They explore, mine, refine, and smelt copper and other minerals. The other minerals include gold, silver, zinc, and others.
Southern Copper (SCCO) has a different dividend policy. They do not pay a consistent dividend and it goes up and down all the time. They are not trying to be a dividend growth stock like the dividend aristocrats. They take into account capital projects and future cash flow. Due to the volatility of copper prices, maintaining a consistent dividend would be hard. As such, they increase and decrease it all the time, pretty much every quarter. They have had paid a dividend of over $2 a share in 1 quarter, to the last one of $0.03, which is very low.
With the variable yield, it might not be the best for passive income. However, having a dividend meets one of our rules, they have to pay a dividend. While they have a 0.4% dividend today, and maybe for a while, we expect the variable dividend policy to pay off in the future. Right now, they are paying $0.12 per share per year. This may seem odd to have in a dividend portfolio. However, in the last 10 years, at our share purchase price, one year they had 32% yield. Over the last 10 years, they have over an average 9% dividend yield. Once copper goes back up in price, this can be a very high payer. We want to buy this before the dividend goes back up, because the stock price can go back up to historical prices which are 50% higher. With a few years of high payouts, we could quickly get all of our money backs, and the years after with the volatile payments will be gravy.
This is a lot of good stuff, but why pick Southern Copper (SCCO)? A lot of mining company are based outside the US, and they give us exposure to the world and pay dividends in US$. A lot of mining companies, like Freeport-McMoran (FCX), have eliminated their dividend payment. Even though Southern Copper (SCCO) has a very low dividend, it still fits in their dividend policy and they still pay one. Southern Copper (SCCO) has the lowest cost structure of the major copper producers. Being the low-cost producer of a basic material is one of the most important factors in being the best in mining. That will give them the competitive advantages in downturns, and make more money when copper prices improve.
We bought 10 shares of Southern Copper (SCCO) for $285.08, including those commissions to pay for those fancy copper pipes for the buildings. Our starting dividend will be $1.20 a year. A good year can bring in over $80 a year. So when commodities go up in price and the store visits cost more, our portfolio will make more money to lay more copper pipes.