Christmas has come early for shareholders in Rio Tinto with the mining giant yesterday revealing a surge in interim profit and a record interim dividend payout to shareholders as well as a boost to its current buyback.
Rio lifted its half year payout to shareholders by 144% to $US1.10 a share (around $A1.37), as well as lifting the existing $US500 million buyback announced in February, by a further $US1 billion.
The bumper payout means Rio’s total 2017 dividend could be the largest in the company’s history.
Rio ended its longstanding “progressive” policy of maintaining or increasing its dividend year by year in February 2016 (under pressure from investors as commodity prices tanked), moving to a payout ratio of giving between 40% and 60% of underlying earnings back to shareholders as a dividend every six months.
With the boost to the buyback, 75% of underlying earnings will be returned to shareholders.
Rio’s example of boosting returns to shareholders means that BHP shareholders can expect a surge in returns when it releases its full year figures later this month.
The pressure from activist shareholder and vulture investor, Elliott Associates means all but guarantees a jump in dividend and a buyback from BHP.
Rio is the second biggest iron ore miner globally and the largest in Australia. It has about 200,000 Australian shareholders who will appreciate seeing last year’s interim of 45 US cents more than doubled after a surge in iron ore, coal and copper prices in the first half of this year.
The higher dividend will be payable on Thursday, September 21.
“Today we have announced total cash returns to shareholders of $3bn. By driving performance, focusing on cash and allocating it with discipline we are delivering superior cash returns to our shareholders,” chief executive Jean-Sébastien Jacques said in yesterday’s release.
"These are strong results: operating cash flow was $6.3 billion and we met our $2 billion cash cost reduction target six months early. We are now shifting gear to focus on the untapped value from our productivity programme and continue to strengthen our portfolio to build higher returns for the future.
"We announced the sale of our thermal coal business in Australia for $2.7 billion and are making good progress on our compelling growth projects – Oyu Tolgoi, Amrun and Silvergrass,” he added.
The mining giant, which produces more iron ore than any other Australian miner, has about 200,000 Australian shareholders. The dividend will be payable on Thursday, September 21.
Rio shares ended down 0.16% at $A65.88.
Net profit after tax rose 152% to $US3.9 billion in the six months to June, undershooting analyst forecasts around $US4.1 billion.
Revenues rose 24% to $US19.3 billion, while net debt fell $US2 billion to $US7.6 billion, leaving Rio with a gearing ratio of 13%. Underlying profit jumped 68% to $US9.04 billion for the half year
Rio’s big payout means its total 2017 dividend could be the largest in the company’s history.
This new policy ensures between 40% and 60% of underlying earnings are paid out as a dividend every six months.
Rio typically skews it payments to the second half of the year. If current commodity prices hold analysts believe the 2017 dividend could top the $US2.15 it paid out under the old policy in 2015.
The only obstacle is that the second half of last year saw a sharp rise in commodity prices, especially iron ore and coal which will make the second half comparison less spectacular and the profit gain smaller.
And there could be more money for shareholders when the company completes the $US2.7 billion sale of its Australian thermal coal assets to China’s Yancoal Australia (which yesterday revealed a $US2.5 billion fund raising) later this year.
Rio said it iron ore business had delivered 80% of the group’s underlying earnings in the six months to June. The miner produced almost 130 million tonnes of ore during that period and received an average price of $US67.80, up 26% on a year ago. They were around $US73 a tonne yesterday.
