Rio Tinto dividend

[funduffer]

If anyone is interested in an in-depth analysis of the prospects for RIO's dividend, then you maybe ought to read this:

https://www.ukdividendstocks.com/blog/b ... dend-yield

Analysis by John Kingham.

TLDR - his view of future RIO dividend:

In terms of dividends, the model says Rio Tinto could afford to pay a progressively increasing dividend, going from $3.19 in 2022 to $4.37 by 2030.

$3.19 is a long way below the record $10 total dividend paid in 2021 and it's also a long way below 2021's $7.93 ordinary dividend, but that huge dividend was only possible because of the recent surge in inflation. Personally, I don't think a $7.93 ordinary dividend is even remotely sustainable, and here's why:

Inflation has an immediate upward impact on the cost of metals, so Rio Tinto's revenues exploded along with metal prices. But it takes time for that inflation to pass through from primary goods like iron ore to the manufactured goods (like trucks) and services (like employees) that make up Rio Tinto's expenses.

Because of that, revenues surged ahead of expenses, which led to windfall profits and record dividends for miners and oil & gas companies. However, input costs will eventually go up with inflation, so margins will eventually return to more normal levels and so will earnings and dividends.

On that basis, I think my model's $3.19 dividend estimate for 2022 is reasonable. It will be wrong, of course, but that's okay because it's the estimate of long-term dividends that matters. And just out of interest, a $3.19 dividend would give the company a still-healthy dividend yield of 5.1% at its current £51 ($62) share price.

I hold RIO and will continue to do so, but not top up at present.

FD

[idpickering]

If anyone is interested in an in-depth analysis of the prospects for RIO's dividend, then you maybe ought to read this:

https://www.ukdividendstocks.com/blog/b ... dend-yield

Analysis by John Kingham.

TLDR - his view of future RIO dividend:

In terms of dividends, the model says Rio Tinto could afford to pay a progressively increasing dividend, going from $3.19 in 2022 to $4.37 by 2030.

$3.19 is a long way below the record $10 total dividend paid in 2021 and it's also a long way below 2021's $7.93 ordinary dividend, but that huge dividend was only possible because of the recent surge in inflation. Personally, I don't think a $7.93 ordinary dividend is even remotely sustainable, and here's why:

Inflation has an immediate upward impact on the cost of metals, so Rio Tinto's revenues exploded along with metal prices. But it takes time for that inflation to pass through from primary goods like iron ore to the manufactured goods (like trucks) and services (like employees) that make up Rio Tinto's expenses.

Because of that, revenues surged ahead of expenses, which led to windfall profits and record dividends for miners and oil & gas companies. However, input costs will eventually go up with inflation, so margins will eventually return to more normal levels and so will earnings and dividends.

On that basis, I think my model's $3.19 dividend estimate for 2022 is reasonable. It will be wrong, of course, but that's okay because it's the estimate of long-term dividends that matters. And just out of interest, a $3.19 dividend would give the company a still-healthy dividend yield of 5.1% at its current £51 ($62) share price.

I hold RIO and will continue to do so, but not top up at present.

FD

Thanks for this FD. An interesting read indeed.

I too hold RIO, but am toying with topping up my holdings tbh. For me that'll more likely be it for that share for now, as they'd be at my maximum spend on any given holding in my HYP. I've got a couple of weeks to mull it over though.

Ian.

[scrumpyjack]

The miners have adopted a policy of paying at least a certain percentage of their profit as dividend. They have not claimed the current level of dividend is sustainable, so it is a bit unfair to malign them on that basis! It is a sensible policy, in a cyclical industry, to do this and not try to maintain a high dividend when profits fall. I have no problem that the dividends on my BHP and Rio shares go up and down dramatically year to year. They have been a much better investment than the plodders that try to maintain their divi and plod on into eventual bankruptcy.

[Darka]

The miners have adopted a policy of paying at least a certain percentage of their profit as dividend. They have not claimed the current level of dividend is sustainable, so it is a bit unfair to malign them on that basis! It is a sensible policy, in a cyclical industry, to do this and not try to maintain a high dividend when profits fall. I have no problem that the dividends on my BHP and Rio shares go up and down dramatically year to year. They have been a much better investment than the plodders that try to maintain their divi and plod on into eventual bankruptcy.

I agree, both RIO and BHP have been excellent investments for me and I don't mind that their dividends go up and down, overall they pay out very well and tend to recover from problems very quickly.

[MDW1954]

The miners have adopted a policy of paying at least a certain percentage of their profit as dividend. They have not claimed the current level of dividend is sustainable, so it is a bit unfair to malign them on that basis! It is a sensible policy, in a cyclical industry, to do this and not try to maintain a high dividend when profits fall. I have no problem that the dividends on my BHP and Rio shares go up and down dramatically year to year. They have been a much better investment than the plodders that try to maintain their divi and plod on into eventual bankruptcy.

Having read the extract, I wasn't remotely tempted to read the actual article.

Shame, as John Kingham is usually good.

But yes: cyclical. And if IDP is reading this, the time to buy RIO, BHP etc etc is at the bottom of the cycle, not the top.

Back in 2016, I was picking up BHP shares at £5.95 -- today, they're at £22.

MDW1954

[idpickering]

Having read the extract, I wasn't remotely tempted to read the actual article.

Shame, as John Kingham is usually good.

But yes: cyclical. And if IDP is reading this, the time to buy RIO, BHP etc etc is at the bottom of the cycle, not the top.

Back in 2016, I was picking up BHP shares at £5.95 -- today, they're at £22.

MDW1954

Indeed I am reading this Malcolm, thanks for your input. imho, the current lowering of the RIO sp is a chance to pick up a bargain, I think that's the point you were making? I get that they're in a cyclical industry, and I accept that. I'm not trying to be clever, but I do like a bargain. I have no intention of selling my RIO shares, and am very happy to sit on them for years......

Ian.

[richfool]

Having read the extract, I wasn't remotely tempted to read the actual article.

Shame, as John Kingham is usually good.

But yes: cyclical. And if IDP is reading this, the time to buy RIO, BHP etc etc is at the bottom of the cycle, not the top.

Back in 2016, I was picking up BHP shares at £5.95 -- today, they're at £22.

MDW1954

viewtopic.php?p=509125#p509125

Indeed I am reading this Malcolm, thanks for your input. imho, the current lowering of the RIO sp is a chance to pick up a bargain, I think that's the point you were making? I get that they're in a cyclical industry, and I accept that. I'm not trying to be clever, but I do like a bargain. I have no intention of selling my RIO shares, and am very happy to sit on them for years......

Ian.

Ian, I too am following this thread and thinking about miners. The conclusion I drew from Malcolm's post was that the current price of £22 may be a long way short of a bargain or indeed the bottom of the cycle. I.e. one might be buying on the way down, rather than near the bottom.

viewtopic.php?p=509125#p509125

[idpickering]

Having read the extract, I wasn't remotely tempted to read the actual article.

Shame, as John Kingham is usually good.

But yes: cyclical. And if IDP is reading this, the time to buy RIO, BHP etc etc is at the bottom of the cycle, not the top.

Back in 2016, I was picking up BHP shares at £5.95 -- today, they're at £22.

MDW1954

viewtopic.php?p=509125#p509125

Indeed I am reading this Malcolm, thanks for your input. imho, the current lowering of the RIO sp is a chance to pick up a bargain, I think that's the point you were making? I get that they're in a cyclical industry, and I accept that. I'm not trying to be clever, but I do like a bargain. I have no intention of selling my RIO shares, and am very happy to sit on them for years......

Ian.

Ian, I too am following this thread and thinking about miners. The conclusion I drew from Malcolm's post was that the current price of £22 may be a long way short of a bargain or indeed the bottom of the cycle. I.e. one might be buying on the way down, rather than near the bottom.

viewtopic.php?p=509125#p509125

Thanks for your input. In retrospect I’m thinking that’s what Malcolm was inferring too, although I wouldn’t want to put words in his, or anyone else’s mouths. Either way, I’m of a mind that no one can tell the future of any share, and am ok with buying more RIO soon, thinking long term for the maybe inevitable up turn in sentiment towards the sector, although that’s not a given obviously.

Ian.

[pyad]

...But yes: cyclical. And if IDP is reading this, the time to buy RIO, BHP etc etc is at the bottom of the cycle, not the top.

Back in 2016, I was picking up BHP shares at £5.95 -- today, they're at £22.

MDW1954

No doubt then that you will be informing us of the point at which the bottom of the cycle is reached, preferably in advance so that we can all be prepared to go in, rather than as above six years later.

[csearle]

Other than perhaps with one eye on diversification I pretty much ignore (directly) the perceived cyclicity of Rio Tinto (or other companies) for my HYP as it will be accounted for in the yield rankings when it comes to topping up. (For example they are currently in position 18 out of 27.)

Chris

[idpickering]

Further to my comment above about the possible forthcoming upturn in sentiment towards RIO, I’m not to fussed about capital value terms upticks, although nice obviously, I’m more focussed on being a buyer of the great dividend yield that can be bought by buying RIO shares in the current climate. It’s all about the income hereabouts after all.

Ian.

[tjh290633]

Other than perhaps with one eye on diversification I pretty much ignore (directly) the perceived cyclicity of Rio Tinto (or other companies) for my HYP as it will be accounted for in the yield rankings when it comes to topping up. (For example they are currently in position 18 out of 27.)

Chris

Both RIO and BHP are top of my rankings for contribution to income, likewise for yield, with ADM splitting them. Both contribute about 7.65% to income, well above my 5% limit. RIO is ranked 24/37 in the weight rankings while BHP is 5/37. BHP fell a little on the 1st June, when Woodside was split off. RIO was trimmed last July when overweight at 4638p. Of the two, RIO looks most like to become eligible for a top-up, should the dividend be halved.

TJH

[Itsallaguess]

Looking back with hindsight at the majority of the single-share HYP catastrophes that I've suffered in the now-thankfully distant past, I can say without a moments hesitation that the vast majority of them were based on a belief that I was buying into an income investment that looked so appealing, that the opportunity to invest in it was simply 'too good to miss'...

Such decisions, with hindsight, were often pure insanity...

At its current level of 'yield', RIO must surely belong in that 'too good to be true' territory -



Source - https://www.dividenddata.co.uk/dividend-yield.py?epic=RIO

I'll admit to struggling to keep up with the views of some HYP proponents on this, who seem to regularly flip between 'no need to chase the yield', to 'happy to pick up a bargain', depending on what day of the week it is, but the simple question an income-investor needs to ask themselves before investing in such an ultra-high yielder as RIO, is just why much larger investors wouldn't arbitrage such a bargain away by hoovering up all the available shares, if such an income-yield was currently available that would persist into perpetuity....

Surely the simplest of answers to that question is 'because it can't'....

Cheers,

Itsallaguess

[richfool]

Yes, surely one of the biggest questions particularly for a HYP'er, in a nutshell, is: "Is the dividend sustainable?"

[idpickering]

Yes, surely one of the biggest questions particularly for a HYP'er, in a nutshell, is: "Is the dividend sustainable?"

Agreed. However, imho, none of us can tell the future of any share. All we can do is do our own due diligence to our own satisfaction, we’re all different after all, and ensure we have a diversified portfolio to hopefully help lessen any mishaps on our own parts.

Ian.

[Dod101]

The yields of the mining shares are, as always, the historical yields and there seems to me to be no prospect of there not being dividend cuts. That being the case it may just be that the share price might not move too much when the cut comes as it is likely that they would still be giving a decent yield at the current price. As someone more or less said not so long ago, the dividend cut might well be priced in.

I was interested in MDW's reaction to the summary of the article by John Kingham. The article was not telling us much we might not already know but all the same I would be interested to know what put MDW off.

Dod

[Itsallaguess]

The yields of the mining shares are, as always, the historical yields and there seems to me to be no prospect of there not being dividend cuts.

That being the case it may just be that the share price might not move too much when the cut comes as it is likely that they would still be giving a decent yield at the current price.

As someone more or less said not so long ago, the dividend cut might well be priced in.

Ah - the classic -

'Even if the yield halved, it would still be a good yield'...

There's good reasons as to why it's a classic...

The problem is, of course, that life is never that simple, or that risk-free....

Cheers,

Itsallaguess

[Dod101]

The yields of the mining shares are, as always, the historical yields and there seems to me to be no prospect of there not being dividend cuts.

That being the case it may just be that the share price might not move too much when the cut comes as it is likely that they would still be giving a decent yield at the current price.

As someone more or less said not so long ago, the dividend cut might well be priced in.

Ah - the classic -

'Even if the yield halved, it would still be a good yield'...

There's good reasons as to why it's a classic...

The problem is, of course, that life is never that simple, or that risk-free....

Cheers,

Itsallaguess

I hold neither Rio nor BHP and so it does not matter to me what happens to the dividend (or the share price). It may be the classic comment but what do you think will happen if the dividend is substantially cut?

Dod

[MDW1954]

...But yes: cyclical. And if IDP is reading this, the time to buy RIO, BHP etc etc is at the bottom of the cycle, not the top.

Back in 2016, I was picking up BHP shares at £5.95 -- today, they're at £22.

MDW1954

No doubt then that you will be informing us of the point at which the bottom of the cycle is reached, preferably in advance so that we can all be prepared to go in, rather than as above six years later.

No, of course not. As you well know, Stephen.

I make no such claims about knowing when the bottom of the cycle has been reached. All that was clear back in late 2015/ early 2016 was that resources stocks were in some serious doldrums, and I bought quite widely.

And if you pause to reflect a moment, when such apparent industry-wide opportunities do emerge, I often do say so, via my twice-monthly Motley Fool column, or by subscriber-only articles for Motley Fool.

MDW1954

[kempiejon]

I've quickly looked over the charts at dividenddata for the miners Anglo, BHP group, Glencore and Rio; over a decade plus it looks to me that Rio had the fewer stumbles and better recovery and longer term income increases. I know I have no idea if Rio will continue that trend, BHP looks 2nd runner up and I do have both. I've not looked closer at debt, cover and other income safety factors as mining is not a sector I want to add to just now and a heavy weight in my portfolio.