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The Rio Tinto (LSE: RIO) share worth slipped immediately (30 July) after the FTSE 100 mining big reported falling earnings and decrease money flows in its half-year outcomes. That will sound disappointing, however the total image isn’t fairly so gloomy.
Underlying earnings dropped 16% to $4.8bn, hit by a 13% hunch in iron ore costs and continued fallout from 4 cyclones earlier within the yr. Working money stream slipped 2% to $6.9bn, whereas underlying EBITDA fell 5% to $11.5bn.
The dividend additionally took a knock. Administration caught to its coverage of returning half of earnings to shareholders, which meant an interim payout of $2.4bn. That’s nonetheless a giant quantity, however the extraordinary dividend per share slumped from 177 US cents to 148 cents. That’s a 16% minimize.
Money flows stay immense
These numbers present a enterprise that’s nonetheless producing enormous quantities of money and absorbing market shocks higher than many may anticipate. Rio’s aluminium and copper divisions each improved efficiency, and its Pilbara operations are recovering nicely. CEO Jakob Stausholm praised “very resilient monetary outcomes with an bettering operational efficiency”, helped by the group’s more and more diversified portfolio.
Regardless of the earnings drop, Rio continues to be a money-printing machine. Internet earnings got here in at $4.5bn, however that was down 22%. It nonetheless poured billions into shareholders’ pockets via dividends.
I’ve adopted this miner carefully and favored the look of its money flows. However I nonetheless haven’t pulled the set off on shopping for the shares. That’s partly as a result of I already maintain rival FTSE 100 miner Glencore, which provides me loads of publicity to international metals markets. To this point, neither has delivered the form of bounce I’d hoped for.
The most important purpose I’m cautious is that the so-called commodities supercycle nonetheless hasn’t turned up, regardless of hovering copper costs. China’s unimaginable progress story powered this sector for twenty years, however that’s trying nicely previous its peak now. Even when Beijing launches one other stimulus, a lot of the infrastructure is already constructed. Probably an excessive amount of of it.
Valuation seems compelling
Even so, Rio Tinto is difficult to disregard given immediately’s price-to-earnings ratio of simply 9.27. That’s low for a enterprise with a lot scale and international attain. The trailing dividend yield stands at a chunky 6.7%. Nonetheless, that’s forecast to dip to five.72% in 2025 and 5.51% in 2026, reflecting slowing money flows and income.
Over 20 analysts have weighed in on the inventory, producing a median 12-month goal worth of 116.75p. That’s 31% above the place the shares commerce immediately. Eight say it’s a Sturdy Purchase, one says Purchase, and 7 say Maintain. No person’s promoting.
One for long-term dividend hunters?
The share worth is down 6.8% over the past yr, and flat over 5. That doesn’t encourage confidence, and Trump’s tariff rhetoric might preserve the strain on. Rio beforehand warned that tariffs have added $300m to the price of Canadian aluminium exports.
Lengthy-term earnings buyers searching for some diversification into the crushed down commodity sector may take into account shopping for this one for the yield alone. The shares ought to develop from immediately’s low base, nevertheless it may take time.
