In this article I’ll explain what’s happened, and why the shares are up.
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Rio Tinto gives back
Iron ore giant Rio has some of the largest, lowest-cost iron ore mines in the world, so profits are holding up well, despite the current weak market for iron ore.
In its 2014 results today, Rio reported post-tax profits of $6.5bn, a 78% increase from 2013. The firm said that capital expenditure had been cut from $13bn to $8bn in 2014, but net cash from operating activities had fallen by just 5% to $14.3bn, despite the weaker iron ore market.
Rio’s net debt fell by 31% to $12.5bn last year, reducing the firm’s net gearing to an undemanding 22%.
As a result, Rio announced a $2.0bn share buyback today, alongside a 12% dividend hike that gives Rio shares a yield of 4.6% at today’s 3,060p share price.
Lancashire returns cash
Specialist insurer Lancashire Holdings offers protection for ships, aeroplanes, oil platforms and terrorism and natural disaster risks — and overall, it’s been a fairly quiet couple of years for the firm, with no major catastrophes to pay out on.
As a result, Lancashire has been returning some of its surplus capital to shareholders, resulting in eye-popping yields.
Today’s final results revealed that the total dividend for 2014, including one-off special dividends, will be $1.85, or around 122p. That’s 32% higher than City forecasts for $1.40, and gives the shares a stonking trailing yield of 19%!
Lancashire’s earnings and dividends vary widely from year to year — the latest consensus forecasts for 2015 suggest the dividend payout will be much lower this year, at $0.90 — although this still gives a prospective yield of 9.3%.
APR Energy recovery?
Shares in temporary power supplier APR Energy are up by 19% as I write, after the firm confirmed that a major new project in Australia has successfully been commissioned, and is due to run until 2017.
This isn’t a new project, but seems to have ignited interest in the stock, which has fallen by 68% over the last year, mainly because the firm failed to renew a major contract in Libya.
However, APR now trades on a 2015 forecast P/E of 18.7, suggesting to me that until we know more about the financial implications of APR’s Libya withdrawal, the shares are a risky buy.