Rio Tinto dividend exceeds forecasts
Rio Tinto is delivering on a promise to reward investors by paying out a bigger-than-expected dividend and announcing a surprise $500m share buyback. The 81% surge in iron ore prices in 2016 helped the mining firm to report its first gain in annual profit since 2013, exceeding expectations.
Rio Tinto is delivering on a promise to reward investors as it emerges from an industrywide downturn by paying out a bigger-than-expected dividend and announcing a surprise $500m share buyback.
Last year’s 81% surge in iron ore prices helped the world’s second-biggest mining firm to report its first gain in annual profit since 2013, exceeding analysts’ expectations. The company is focusing on generating cash for investors, helped by recent asset sales, chief financial officer Chris Lynch said.
“It’s been a long grind back from the global financial abyss that Rio slumped into. But it certainly looks and feels like the ‘old-school’ Rio swagger is back,” Peter O’Connor, an analyst at Shaw & Partners in Sydney, said in a note.
The global mining industry is rebounding from a downturn that forced some of the top producers to sell assets and rein in spending after years of overinvestment bloated balance sheets and left markets oversupplied. Iron ore, Rio’s main profit driver, jumped last year as Chinese stimulus supported local steel output, leading to better demand for overseas ore.
“The buyback is a statement of intent,” Lynch said. “We’ve said we would return cash to shareholders. We’ve done that to the top of the dividend range and we had some spare capacity. I’m quite comfortable about that.”
Underlying full-year profit rose 12% to $5.1bn in 2016, London-based Rio said on Wednesday. That beat the $4.75bn average estimate of analysts compiled by Bloomberg.
While the full-year dividend fell 21% to 170c a share, it was at the top of Rio’s payout range of 40% to 60% of earnings under a new policy introduced last year. That also exceeded the average estimate of 136c in the Bloomberg survey.
NET DEBT FALLS
“Rio is in good shape today,” CEO Jean Sebastien Jacques said. “We have kept our promises. We have delivered cost savings. We have strengthened the quality of our portfolio. We are investing for the long term and at the same time, we have strengthened our balance sheet.”
Rio’s net debt fell 30% to $9.6bn at the end of 2016. Lynch said the company was aiming to further cut borrowings in 2017.
Rio said it would buy $500m of UK-listed shares throughout 2017. The stock rebounded from a seven-year low to rally 60% in London in 2016. It rose 1.9% to 3,501.50p on Wednesday morning in London, taking this year’s gain to 11%.