Last update on 2024-06-27

Freeport-McMoRan (FCX) - Dividend Analysis (Final Score: 3/8)

In-depth analysis of Freeport-McMoRan (FCX) dividend policy and stability. Final Score: 3/8 based on an 8-criteria scoring system.

Short Analysis - Dividend Score: 3

We're running Freeport-McMoRan (FCX) against the 8-criteria scoring system to evaluate the performance and stability of a company's dividend policy.

The dividend analysis for Freeport-McMoRan (FCX) using an 8-criteria scoring system yields a dividend score of 3 out of 8. FCX's dividend yield in 2023 is 1.4094%, which is lower than the industry average of 2.24%, and has shown extreme volatility over the past 20 years. The average annual dividend growth rate is higher than 5%, but significant volatility and frequent years with no dividends detract from its attractiveness. The average annual payout ratio is 14.53%, which is sustainably below the 65% benchmark, indicating prudence in dividend payments.

Insights for Value Investors Seeking Stable Income

Overall, FCX's dividend policy exhibits high volatility and inconsistent payouts, making it less appealing for income-focused investors seeking stable and reliable dividends. The company's sustainable payout ratio is a positive aspect, but the inconsistency in dividend and stock repurchase histories over the past 20 years points to potential risks. Long-term investors might want to consider companies with more stable and reliable dividend and buyback strategies.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Dividend Yield Higher than the Industry Average?

Dividend yield indicates the percentage of a company's share price that is paid out in dividends each year. It is a crucial metric for investors, particularly income-focused ones, as it provides insight into the cash flow they might expect from holding a stock.

In 2023, FCX has a dividend yield of 1.4094%, which is notably lower than the industry average of 2.24%. When examining the trend over the past 20 years, FCX's dividend yield has shown significant volatility. For instance, it peaked at 8.4786% in 2015, likely during a period of lower stock prices and temporarily elevated dividend payments. However, the yield dropped to zero in several years, reflecting periods when the company did not pay dividends, such as in 2009 and 2016. These fluctuations suggest that FCX's dividend policy is highly reactive to broader economic and commodity market conditions, given their exposure to cyclical industries such as mining. The most recent yield being below the industry average indicates that, at this juncture, FCX might not be as attractive to income-focused investors as its peers. Overall, the lower-than-average yield in 2023 is somewhat unfavorable for those seeking consistent dividend income, although it may also imply a more conservative approach to capital allocation under current market conditions.

Average annual Growth Rate higher than 5% in the last 20 years?

The criterion evaluates whether the Dividend Growth Rate is higher than 5% over the last 20 years. This is important as a consistent and high Dividend Growth Rate enhances shareholder returns and point towards a stable financial outlook.

Looking at the Dividend Ratio data spanning 20 years, it becomes clear that Freeport-McMoRan (FCX) has a very volatile dividend distribution. The dividend per share ratio exhibits sharp fluctuations, including years with significant negative values (e.g., -100 in 2009 and 2016), years with no dividends (2010, 2017, 2018), and years with unusually high increases (350% in 2021). On average, the Dividend Ratio stands at approximately 36.89%, which is above the 5% threshold. However, this average masks the significant year-to-year volatility. While the average growth rate surpasses 5%, the extreme variability and frequent negative growth years deter any outright positive trend confirmation. Therefore, the trend is bad concerning consistent dividend growth, as stability is key for long-term dividend investors.

Average annual Payout Ratio lower than 65% in the last 20 years?

Average payout ratio lower than 65% in the last 20 years indicates sustainable and reliable dividends.

FCX has an average payout ratio of 14.5263% over the past 20 years. This is significantly lower than the 65% benchmark. With only a couple of years showing payout ratios above that threshold, and some negative or zero values indicating years where dividends were likely suspended, FCX has generally maintained a cautious and sustainable approach to dividend payments. This trend is favorable for long-term investors looking for reliable dividends without the risk of the company overextending its payouts beyond its earnings capacity.

Dividends Well Covered by Earnings?

This criterion evaluates whether the company's earnings are sufficient to cover the dividends it pays out. It's crucial as it indicates the sustainability of the dividend payments.

For Freeport-McMoRan, the dividend per share has been fluctuating over the years, just as the earnings per share. A close look at the ratio of dividends to earnings shows several concerning trends. There are years (e.g., 2008, 2014, 2015, and 2019) where the ratio is negative or zero, indicating that earnings were not enough to cover the dividends, or dividends were halted. Positive ratios like in 2013 and 2021 are still relatively low, suggesting insufficient cushion. Only in years like 2004 (1.0056) does the ratio exceed 1, showing well-covered dividends. Overall, the trend is not very stable and indicates potential risks for future dividend sustainability.

Dividends Well Covered by Cash Flow?

Dividends Well Covered by Cash Flow

Free cash flow (FCF) is a critical indicator of a company's financial health because it shows how much cash a company generates after accounting for capital expenditures. Compared to this, the dividend payout amount shows how much of that cash is used to distribute dividends to shareholders. To assess if the dividends are well covered by cash flow, we look at the ratio of FCF to dividend payout. As a rule of thumb, a ratio above 1 indicates that dividends are well covered by FCF, suggesting sustainability, while a ratio below 1 signals potential issues in maintaining dividend payments. Freeport-McMoRan's free cash flow coverage on dividends shows considerable variability from year to year. For instance, in 2003, the ratio was about 0.18, meaning dividends were not well covered by cash flow. This trend continues inconsistently, for example, in 2007 (ratio 0.13) and 2008 (ratio 1.43). Particularly, 2014 and 2015 stand out with negative coverage (-0.82 and -0.19, respectively), highlighting periods of potential financial strain. Encouraging signs appear in 2023 with a ratio of approximately 1.90, suggesting a healthier coverage of dividends by cash flow. Such variability can raise concerns about the sustainability and reliability of future dividend payments. Investors would do well to consider these fluctuations in their risk assessments.

Stable Dividends Since the Company Began Paying Dividends?

Stability in dividend payments, where the dividend per share did not drop by more than 20% over the past two decades, is of utmost importance for income-seeking investors.

Freeport-McMoRan's (FCX) historical dividend payouts over the past 20 years reveal significant instability. Notably, the company suspended dividends in multiple years (2009, 2016, 2017), and multiple decreases and suspensions well beyond the 20% threshold occurred. For instance, the dividend dropped from $2.565 per share in 2013 to $1.252 in 2014 (a 51% decrease) and eventually to $0 in 2016 and 2017. The reinstatement and subsequent dividends, which see-sawed in value, indicate fluctuations influenced by external market conditions, notably copper and gold prices, aligning poorly with the criterion of stable dividends. This erratic trend is adverse for income-seeking investors who prioritize consistent dividend income over long periods.

Dividends Paid for Over 25 Years?

The dividend track record over a 25-year period indicates the company's commitment to returning value to its shareholders. Stability and consistency in this criterion also signify robust financial health, making it important for investors.

Freeport-McMoRan's (FCX) dividend history over the past 25 years showcases notable inconsistencies. The company did not pay out dividends in several years, including between 1999-2003, 2009, 2015, and 2016. This intermittent payout pattern can be concerning for dividend-focused investors, as it may suggest an inability to sustain consistent profitability or adverse economic conditions impacting the company's cash flow at various intervals. However, in more recent years, specifically from 2020 to 2023, there appears to be a resurgence in dividend payouts, with a noticeable increase from $0.05 per share in 2020 to $0.6 per share in 2023. This trend is favorable, but the overall historical inconsistency undermines the reliability of FCX as a dividend stock.

Reliable Stock Repurchases Over the Past 20 Years?

Evaluating the reliability of stock repurchases over the past 20 years is crucial as it signifies management's commitment to returning value to shareholders through buying back shares, which can increase EPS and share value.

Freeport-McMoRan (FCX) has demonstrated a relatively sporadic approach to stock repurchases over the past 20 years. Analyzing the data, the company repurchased shares in the years 2008, 2012, 2019, 2022, and 2023. This showcases a pattern where repurchases are not a consistent annual event but occur in certain years. The number of shares outstanding started at 318.2 million in 2003 and witnessed a significant rise, peaking at approximately 1.458 billion shares in 2018. The sporadic share repurchases indicate that while management has made efforts to reduce the share count in certain years, the overall trend indicates dilution rather than a consistent buyback strategy. The average number of repurchase years (8.978 or approximately 9 years) in the context of 20 years suggests that almost half of those years did not feature stock repurchases. This trend could be perceived as less favorable, as reliable and sustained repurchasing typically conveys a stronger commitment to enhancing shareholder value over time. Hence, FCX's intermittent repurchase strategy might be seen as cautious but lacks the kind of reliability often desired by long-term investors.