Rio Tinto (GB:RIO) shares have experienced a decline of over 5% in the past five days, following a YTD drop of 15%. This was mainly prompted by the shares going ex-dividend in the last week. Consequently, individuals purchasing Rio Tinto shares now will not be eligible for its last dividend, as the rights will remain with the seller. In such cases, the share price typically adjusts downward in correspondence with the dividend amount.
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Overall, the shares are experiencing a dull period due to falling commodity prices, which also impacted their half-yearly earnings for 2023.
Rio Tinto is a leading miner engaged in mineral exploration, mining, and processing activities. The company has a diversified portfolio of products, including iron ore, copper, aluminum, lithium, etc. The company’s operations have a significant focus on iron ore, which contributes substantially to its revenue stream.
What is Rio Tinto’s Dividend?
In recent years, mining company Rio Tinto has provided favorable dividends to its shareholders. Nevertheless, the situation took a turn when the iron ore price slumped and profits started declining, leading to a reduction in dividends.
In the latest results declared by the company, the interim dividend stood at $1.77 per share, 33% lower than the previous year’s level of $2.67. The dividend corresponded to 50% of the company’s underlying earnings, consistent with its payout policy.
In 2016, Rio introduced a dividend policy to maintain its payout within the range of 40 to 60% of its underlying earnings. Given this framework, the current payout falls squarely in the middle of the range, even considering the decline in earnings.
Rio Tinto H1 Results 2023
In July, the company posted its half-yearly earnings, sending the shares further down. The revenue was down by 10% to $2.67 billion. The underlying earnings fell to $5.72 billion, as compared to $8.6 billion in the first half of last year. Moreover, the net profit after tax was hit hard, and it declined by 43% to $5.1 billion. The decline can be attributed to a mix of reduced commodity prices and increased costs.
The company also mentioned challenges due to rising costs and a lack of skilled workers, which also hurt profits. The company’s exploration costs during the first half doubled, reaching a total of $700 million.
Is Rio Tinto a Buy or Sell?
According to TipRanks’ analyst rating consensus, RIO stock has received a Moderate Buy rating. The company has a total of 13 ratings, including seven Buy, four Hold, and two sell recommendations.
The average price target is 4,868.9p, which implies a change of 3.79% from the current share price.
Conclusion
The short-term prospects for iron ore and base metals appear dim. Consequently, the company has ramped up its production of other commodities essential for the energy transition. It includes the growth of copper mining activities within the U.S. Till that time, the dividend is holding the fort for shareholders.
In general, the outlook for the stock remains positive.
