Freeport-McMoRan's Dividend X-Ray

Not all dividends are created equal. Here, we'll do a top-to-bottom analysis of a given company to understand the quality of its dividend and how that's changed over the past five years.
The company we're looking at today is Freeport-McMoRan Copper & Gold (NYSE: FCX), which yields 2.3%.
IndustryFreeport-McMoRan Copper & Gold is a miner of copper and gold based in Phoenix. The stock was crushed in 2008 with the financial crisis because of its large debt load, but has since come back.
Freeport-McMoran Copper & Gold Total
Dividend
To evaluate the quality of a dividend, the first thing to consider is whether the company has paid a dividend consistently over the past five years and if so, how much has it grown.
Freeport-McMoran Copper & Gold
Contrary to how it appears on the graph, Freeport-McMoRan Copper & Gold cut its dividend in 2009 and then reinstated it in 2010 at $0.15 per quarter. The company has since raised its dividend to $0.25 per quarter.
Immediate safety
To understand how safe a dividend is, we first look at:
The interest coverage ratio or the number of times interest is earned, calculated by earnings before interest and taxes, divided by interest expense. The interest coverage ratio measures a company's ability to pay the interest on its debt. An interest coverage ratio less than 1.5 is questionable; a number less than 1 means the company is not bringing in enough money to cover its interest expenses. Freeport-McMoran Copper & Gold Times
Freeport-McMoRan covers every $1 in interest expense with $29 in operating earnings.
Sustainability
Another tool we use to evaluate how safe a dividend is:
The EPS payout ratio, or dividends per share divided by earnings per share. The EPS payout ratio measures the percentage of earnings that go toward paying the dividend. A ratio greater than 80% is worrisome. Source: Capital IQ, a division of Standard & Poor's.
Freeport-McMoRan was unprofitable in 2008 and early 2009; at all other times, the company's payout ratio has been a low 20%.... Read more

Older articles featuring FCX: