We’ve been hearing predictions of the collapse of the mining sector for a couple of years now, with weak commodities prices and the much-predicted slowdown in the Chinese economy expected to result in a further slump in demand.
Yet China is still bumping along with growth of around 7.5% per year, and our major metals miners are unearthing record quantities of valuable dirt and are shipping all they can produce. They’re still keeping their dividend payments up, too, but how safe are they and for how long?
Rio Tinto (LSE: RIO)(NYSE: RIO.US) provided a dividend yield of 4.6% for 2014, and that’s slated to grow to 4.8% this year and 5.2% next on a share price of 3,220p, with what looks like adequate cover by earnings of around 1.6 times. Low prices should help push EPS down by around 25%, but forecasts suggest an earnings recovery in 2016.
For 2014, Rio reported an 11% rise in production of iron ore, its most important product, and a 17% rise in shipments.
More records
BHP Billiton (LSE: BLT)(NYSE: BBL.US) is set to do even better on the dividend front, with a forecast yield of 5.1% in 2015 rising to 5.5% in 2016 on its 1,572p price, although cover is likely to be a bit low at around 1.2 times. That’s under more pressure, though, as EPS is predicted to fall by 40% this year and only remain flat next.
In its first half production report, BHP revealed a 15% rise to a new record for Western Australia iron ore production and a 9% increase in petroleum, two of its key commodities.
Anglo American (LSE: AAL) looks to be the safest of the three, with its 1,223p shares offering forecast yields of 4.7% and 4.9% for this year and next. Cover stands at 1.6 times and 2.2 times respectively, with a handsome 40% rise in EPS predicted for 2016.
Production is similar at Anglo, too, with a 15% rise in iron ore in the fourth quarter of 2014, and coal production up too. Nickel was the big faller, down 34%, but it’s a relatively minor product for the company.
Dividends safe?
As long as production and shipping volumes keep going at around 2014 levels and metal and mineral prices start to bottom out, I think these three dividends should be relatively safe. But if commodity prices continue to fall throughout 2015 we could see dividends pared, with BHP Billiton’s under the heaviest pressure.
But one thing is for sure is that these companies will strive to maintain the progressive dividend policies that most have had in place since before the recession.
