Should Freeport-McMoRan’s Dividend Announcement Cheer Investors?



Dividend announcement

On September 30, 2015, Freeport-McMoRan (FCX) announced a quarterly dividend of $0.05 per share. The dividend will be paid to shareholders on record as of October 15 and will be payable on November 2.

Note that earlier this year, Freeport slashed its quarterly dividend by more than 80% as the company grappled with falling commodity prices. Should Freeport investors cheer the current dividend announcement?

Currently, Freeport forms 2.2% of the Materials Select Sector SPDR ETF (XLB) and 1.14% of the SPDR S&P Global Natural Resources ETF (GNR).

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Equity issuance

In September, Freeport announced that the company had completed $1 billion of at-the-market equity issuance. It also announced another at-the-market equity offering of $1 billion. The announcement had a negative impact on Freeport’s stock price. The recent offering, along with the previously completed issuance, could lead to an equity dilution of 15%–20% depending on the timing of the sale.

In its 2Q15 earnings conference call, Teck Resources (TCK) ruled out a fresh equity issuance, citing low stock prices. On the other hand, Grupo México, which owns Southern Copper (SCCO), has bought back Southern Copper’s shares from the market. You can read more about Southern Copper in our series Southern Copper: A Business Overview of a Copper Giant.

Freeport’s dividend received well

Freeport’s dividend announcement was received well by the markets. Based on the company’s latest filings, the dividend could lead to a cash flow of ~$60 million. The cash outflow resulting from this dividend is not much for a company of Freeport’s size. However, it’s to be noted that Freeport has several challenges with regards to its negative free cash flows.

The biggest concern for Freeport investors is how copper prices could play out. We’ll discuss this in detail in our next part.


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