Many top FTSE 100 companies are currently offering dividends that knock spots off the interest you can get from cash or bonds.
In this festive series of articles, I’m assessing how the companies measure up as income-generators, by looking at dividends past, dividends present and dividends yet to come.
Today, it’s the turn of mining giant Rio Tinto (LSE: RIO) (NYSE: RIO.US).
Dividends past
The table below shows Rio Tinto’s five-year earnings and dividend record.
| 2008* | 2009 | 2010 | 2011 | 2012 | |
|---|---|---|---|---|---|
| Statutory earnings per share (EPS) | 234¢ | 276¢ | 722¢ | 301¢ | -162¢ |
| Dividend per share | 111¢ | 45¢ | 108¢ | 145¢ | 167¢ |
| Dividend growth | 0% | -59% | +140% | +34% | +15% |
* Restated for the impact of a rights issue during 2009
As you can see, Rio Tinto’s dividend growth through the last five years has been extremely erratic. Despite a drastic cut during 2009 — and a $15bn rights issue to repair the company’s debt-laden balance sheet — the dividend advanced by 50% from 2008 to 2012.
Mining companies’ earnings can be volatile from year to year, because metals prices are beyond their control. As such, dividend cover can also be variable. Nevertheless, over the five-year period, Rio Tinto’s total dividend payout of 576¢ a share was covered a healthy 2.4 times by statutory EPS of 1,371¢.
The latest year was a tough one for miners generally, but Rio Tinto had the added burden of $14bn of impairment charges, having overpaid for some past acquisitions. As a result, the dividend was uncovered by negative statutory EPS, although covered 3.0 times by ‘underlying’ EPS of 503¢.
Not a dividend performance for the faint-hearted, or those who were seeking a steadily rising income.
Dividends present
Rio Tinto has paid a half-time dividend of 83.5¢ for the current year. Analyst consensus forecasts suggest a final dividend of 97.5¢ when the company announces its annual results on 14 February — giving a 2013 full-year payout of 181¢ (up 8.4% on 2012).
Underlying EPS is expected to be flat for 2013. The combination of flat EPS and an increase in the dividend would mean slightly lower dividend cover — but still robust at 2.8 times.
At a share price of 3,273p Rio Tinto’s current-year dividend (around 112p sterling expected) represents a yield of 3.4%.
Dividends yet to come
Analysts see a further moderation of dividend growth for 2014, with the payout rising 5.5% to 191¢. The consensus forecast for underlying EPS is 562¢, representing twice the growth rate of the dividend, and moving cover back up towards 3.
The analysts’ EPS forecasts do vary widely around the consensus — much depends on their view of metals prices — but dividend forecasts are more closely clustered.
Rio Tinto has a new chief executive who is much more focused on shareholder value than his empire-building predecessor. Therefore, shareholders can be optimistic about dividend progress moderately ahead of inflation in the near term, with the prospect of periods of stronger growth during punchier phases of the mining cycle.
