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Rio Tinto declares bumper dividend

by LLB Reporter
23rd Feb 22 9:19 am

A decade ago, when commodities prices started to go into a long decline, mining companies had to take a long hard look at how they spent and made money.

The ‘growth at any price’ acquisition spree came to a crashing halt and the strategy shifted to streamlining assets and operations and paying down debt. To keep shareholders happy, dividends became more important as investors were effectively paid to wait for the next commodity boom.

“Fast forward to the present and we’ve seen a continued absence of mega deals which came to haunt the sector, yet commodity prices have greatly improved. That has given the sector’s earnings a massive boost and enriched investors through an ever-growing stream of dividends, as illustrated by Rio Tinto’s bumper payday for its shareholders,” said AJ Bell’s Russ Mould.

“Rio Tinto’s headline grabbing $16.8 billion total dividend payment for 2021 tops the $15.7 billion in dividends paid by Shell in 2018. That’s very impressive and is even greater than the approximate $14.5 billion Apple is paying annually in dividends based on its current quarterly run-rate.

“However, Rio’s figure is flattered by a ‘special’ dividend which is a one-off payment to reflect exceptional circumstances. It has enjoyed very strong earnings thanks to record iron ore prices last year, and from strong demand for aluminium and copper.

“The big question now is whether Rio’s dividends and earnings have peaked in the current commodities cycle. There are plenty of headwinds to suggest global economic growth may slow and forecasts would suggest Rio’s dividends are going to get progressively smaller over the next three years, though that is no doubt a reflection of special dividends being less generous and then not happening at all as it reverts to only paying ordinary dividends.

“The other point to consider is whether Rio is getting itchy to do a mega deal. Miners have been surprisingly restrained with acquisitions, but history would suggest the point at which everything is looking rosy is exactly when they go on a spending spree. They risk buying assets at the top of the market and them lamenting the disappointing returns in subsequent years.”

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