Rio Tinto rewards investors with record dividend after soaring first-half profit
Sydney/London — Global miner Rio Tinto more than doubled its first-half profit and rewarded shareholders with a record interim dividend and a further $1bn in share buybacks, citing strong demand for industrial commodities.
Underlying earnings for the six months to June 30 of $3.94bn missed forecasts for $4.19bn, according to Thomson Reuters IBES, but were well above 2016’s $1.56bn on a recovery in iron ore and other commodity prices.
Rio Tinto declared a record-high half-year dividend of $1.10 a share, equivalent to $2bn, up from 45 US cents a share a year ago. The latest buyback comes on top of a $500m programme announced in February.
"The Chinese economy has performed well in 2017 and the outlook signs for 2018 are positive," CEO Jean-Sebastien Jacques told reporters. "Beyond China, global economies have both improved in Europe and the US."
Rio’s London-listed shares were trading down 1.8% in early trade on Wednesday, with analysts citing some disappointment over the miss in earnings, linked to the cost of paying down debt early.
"The balance sheet is in great shape … suggesting that there is some flexibility in regards further capital management upscaling for the full year," said Shaw and Partners analyst Peter O’Connor.
Iron ore, which generated $3.255bn in underlying earnings in the first half, has been on a rollercoaster ride in 2017, with prices trading between $53 and $95 a tonne and now just under $74.
The market has been underpinned by a resurgence in Chinese steel production, which depends heavily on high-grade imported iron ore, providing Rio Tinto and other producers with ample margins on shipments.
Long-time iron ore bear Goldman Sachs recently raised its 2017 iron ore forecast to $70 a tonne from $55.
Rio Tinto’s full-year dividend is typically weighted toward the second half, which could see an even greater payout, given the company is scheduled to receive payment of $2.69bn for the sale of its Coal & Allied division in Australia to Yancoal Australia Rio Tinto said capital spending should rise by about $500m to $5.5bn in both 2018 and 2019.
Rio Tinto’s focus on shareholder returns could place pressure on rival BHP Billiton to seek ways to better reward its shareholders. BHP is under pressure from activist shareholder US fund Elliott Management to beef up its cash management policy and remove underperforming businesses from its portfolio.
BHP will report its full-year results on August 22.