How Much Cash Return Could Investors Expect From Rio Tinto In 2018?

by Trefis Team
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Rio Tinto (NYSE: RIO) has historically been a strong dividend payer and we expect this trend to continue in 2018. In 2017, the company declared a total cash return to shareholders of $9.7 billion, including the highest ever dividend of $5.2 billion and share buybacks totalling $4.5 billion. The company has been consistently maintaining a dividend payout ratio of ~55% throughout the last 5 years (excluding outliers), making the stock highly attractive to its investors. Historically, the company had also paid a dividend ~$4 billion in 2015 despite reporting a net loss of ~$866 million which had resulted in a negative payout ratio in 2015.

Rio has been able to report such significant amount of cash returns in 2017 due to its strong balance sheet position. Sale proceeds from its Coal & Allied division which completed in 2017 also aided to the proceeds. With the recent recovery experienced in the commodities market, we expect Rio’s revenue to continue to remain strong in 2018 which should result in a strong cash position for the company and support its returns to shareholders along with its debt reduction strategy. The company has a reported adj net debt of $7 billion in 2017, $3.8 billion lower from its 2016 year ending balance. Cash and cash equivalents plus other short-term cash investments at 31 December 2017 were $11.5 billion vs $8.4 billion reported in December 2016.

We expect the company to maintain a dividend payout ratio of ~55% in 2018 based on its historical trends. With an anticipated net income of $9 billion, dividend per share is expected to range around $2.77 per share, a ~16% rise from its 2017 levels. Additionally, the company has a total of $2.9 billion to spend in buy-backs through the course of 2018 which the company declared in 2017.

We have summarized our analysis using our interactive dashboard. You can make changes to our key assumptions of net income and payout ratio to arrive at your own estimate for expected dividend per share in 2018.

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