Picture supply: Getty Pictures
Rio Tinto (LSE:RIO) shares have soared 66% previously six months. Do full-year outcomes launched Thursday morning (19 February) present us why? There’s one rapid standout for me.
CEO Simon Trott stated: “Our robust cash circulate and stability sheet allow us to maintain a 60% payout ratio with a $6.5bn abnormal dividend, making it the tenth consecutive yr on the high finish of the vary.”
Rio Tinto seems like a little bit of a cash cow. The corporate began life in 1873 with the acquisition of a mine on the river of the identical title in Spain — a web site that’s produced copper, silver and gold since antiquity. And since then, it’s been rewarding buyers effectively — although with up-and-down spells in a really cyclical market.
Regardless of the CEO’s glowing phrases, Rio Tinto shares fell greater than 3% in early buying and selling. Let’s see why.
Backside-line revenue flat
Underlying EBITDA in 2025 rose 9% on the earlier yr. However free cash circulate fell 28%, and revenue after tax dipped 14%.
Underlying earnings per share didn’t budge. And whereas the whole dividend payout may need been on the high finish of hopes, per share it was unchanged.
It wasn’t a fantastic yr for iron ore, with the value dipping between December 2024 and a yr later. And prices per tonne at Rio’s Pilbara operation rose. Towards that, nonetheless, copper costs had a powerful yr, boosted by excessive demand from AI-led information centre growth.
Total, that is what we should always anticipate if we purchase shares in a miner or different commodities producer. Our income will rise and fall together with world costs for the stuff they produce. I don’t see any underlying downside with the corporate right here — it’s simply been doing what it ought to do, for yet one more in an extended line of years.
What subsequent?
I see some components very a lot in Rio’s favour. However some issues rely towards it too. I like the worldwide focus — if the US desires to slap tariffs on steel imports, China is barely to joyful to maintain on shopping for. Nonetheless, even with a world outlook, there’s a good bit of dependency on the world’s two largest economies — and each could be politically unsure.
Additionally, short-term metals and minerals costs can fluctuate pretty wildly. And meaning some years of falling costs, and subsequently income, are virtually sure.
Forecasters do have earnings and dividend development on the playing cards over the following few years. The factor is, that might be upended within the brief time period if commodities markets flip down. And having an organization’s revenue so depending on components exterior of its management is all the time a danger.
A cash cow, or not?
I believe buyers latest share value rises and hoping for positive aspects although 2026 ought to probably take into account different alternatives. There’s an excessive amount of scope for short-term volatility for my cash.
However for those that see a long-term cash stream — following a 4% dividend yield for 2025, lined 1.7 occasions by underlying earnings? I very a lot fee Rio Tinto shares as an funding to contemplate for the a long time forward.
Source link
#Rio #Tinto #shares #climb #topend #cash #payout
