For all the market talk of rewards for patient shareholders, Rio Tinto’s (RIO) board looked a touch parsimonious in yesterday’s full year financial year report for 2016.
Even with its cash flow surging from asset sales and the surprise jump in commodity prices in late 2016 (especially iron ore, which has spilled over into the current year), Rio Tinto management decided to only to raise the dividend and delayed the timing of a small $US500 million share buy-back until later in the year.
It raised the final dividend for 2016 to $US1.25 ($A1.64) from $US107.5c the year before. Including the 45 cents share interim, full year payout of was $US1.70 ($A2.23) – down on 2015’s last “progressive dividend”. Rio last year scrapped its longstanding policy of maintaining or increasing its dividend.
While the full year of 170 cents a share is higher than many investors and shareholders had been expecting. Rio had previously said it would pay a dividend of least $US110 cents a share for 2016, the half a billion buyback is well short of the $US2 billion share estimate from analysts.
But with the buyback and the higher dividend, Rio says it will be return in $US3.6 billion in cash to shareholders (should they want to sell into the buyback) for 2016.
Rio shares rose 53c to close at $65.69, well short of the a recent long term high of $67.85 in late January. The rise yesterday was more due to a rise in Chinese iron ore futures than the expected profit rise and higher dividend.
For 2016, Rio earned a net profit of $US4.6 billion, better than the $US866 million loss the year before which was due mainly to impairment and derivative losses.
The underlying profit for last year rose 12% to $US5.1 billion, slightly ahead of market forecasts of $US4.9 billion. Net debt fell 30% to $US 9.6 billion, while the cost cuts, higher prices (especially for iron ore and the asset sales) saw Rio generate more than $US8.5 billion of cash flow and $US5 billion of free cash flow in 2016. Rio sold the Bengalla and Mt Pleasant coal mines in NSW last year, along with its share of the Lochabar aluminium smelter in Scotland.
Earlier this month it agreed to sell the Coal and Allied Industries coal mines in NSW, for $US2.5 billion ($3.2 billion), although settlement is not expected for several months. Once that settles the buyback looks like starting.
Rio CEO, J-S Jacques said in yesterday’s statement: “Today’s results show we have kept our commitment to maximise cash and productivity from our world-class assets, delivering $3.6 billion in shareholder returns while maintaining a robust balance sheet. At the same time, we strengthened the portfolio and advanced our high-value growth projects as we look to the future.
“We enter 2017 in good shape. Our team will deliver $5 billion of extra free cash flow over the next five years from our productivity programme. Our value over volume approach, coupled with a robust balance sheet and world-class assets, places us in a strong position to deliver superior shareholder returns through the cycle,” he said.
