Freeport-McMoRan Inc. (FCX, Financial) announced Wednesday that it will pay a quarterly dividend of 5 cents per ordinary share on Feb. 1. The payment, which is on par with the previous distribution, has a record date of Jan. 15 and the ex-dividend date is scheduled for Jan. 14.
Surprisingly, the share price dipped 3.96% to close at $10.18. For the 52 weeks through Dec. 19, Freeport-McMoRan shares have tumbled 44% and the stock price is below the 200-, 100- and 50-day simple moving average lines.
The stock has been negatively affected by depreciating copper prices, which Freeport-McMoRan is heavily dependent on.Ă‚
Over the same period, copper futures lost 11.3%. The red metal traded around $2.716 per pound on Wednesday.
The trade war between the U.S. and China has impacted copper prices. In addition, investors are nervous about higher interest rates, a possible recession and a slowdown in Chinese economic growth.Ă‚
The company's forward dividend yield is up 1.82% as of Dec. 19. The S&P 500 index is still beating Freeport-McMoRan in terms of higher dividend yield, but the difference is now only 27 basis points. The benchmark for the U.S. equities market has a dividend yield of 2.09%.
In addition, Newmont Mining Corp. (NEM, Financial) and Barrick Gold Corp. (ABX, Financial), the world’s largest gold producers, are selling the metal at $39.32 per gram while Freeport-McMoRan is selling it at less than one cent per gram. But Newmont Mining is granting a forward dividend yield of 1.68% and Barrick Gold is awarding its shareholders with a forward dividend yield of only 0.88%.
So there isn’t any doubt Freeport-McMoRan is trading cheaply compared with the entire U.S. market and the mining industry. The company also has a price-book ratio of 1.48 versus an industry median of 1.74 and an EV-to-EBITDA ratio of 3.29 compared to an industry median of 9.3.
My biggest concern is that the slower overall growth in the world’s second-largest economy, China, and weakening in the Eurozone could become somewhat harsher in 2019, leading to sluggish demand for materials used in manufacturing and construction.
Since copper is one of these materials, a lower price may create some headwinds not only for the company's overall profitability, but also for its future growth prospects. The miner is relying heavily on the Lone Star Project in Arizona, where it hopes to produce 200 million pounds of copper every year over a 20-year period. A low-price environment may cause a delay in the mine's construction process.
As a result, I agree with 12 Wall Street analysts who are suggesting holding Freeport-McMoRan. Out of a total of 23 analysts surveyed, two analysts have a strong buy recommendation, five recommend buying and four analysts think Freeport-McMoRan will underperform. The average recommendation rating is 2.7 out of 5.
The average target price is $15.76 per share, reflecting 55% upside.Ă‚
According to GuruFocus, Freeport-McMoRan has good fundamentals. The financial strength is rated 5 out of 10 and the profitability and growth is rated 6 out of 10. The company and its shareholders can rely on a trailing 12-month operating cash flow turnover of $5.6 billion. Of that, more than 70% is allocated to growth and dividend payments.
Disclosure: I have no positions in any securities mentioned in this article.
Read more here:
