A lot of investors have been wary of mining giants amid talk of a global economic slowdown and a bursting Chinese bubble. I’m one of them, but maybe I got it wrong. FTSE 100-listed iron ore specialist Rio Tinto (LSE: RIO) is up 142% over three years and delighted markets today by announcing a bumper $4bn special dividend.
Rio to go
Rio’s full-year earnings were better than expected with revenues up $500m to $40bn and earnings rising 2% to $8.8bn. That $4bn special dividend, funded from the sale of its Grasberg copper mine in Indonesia and other non-core assets which raised $8.6bn, works out at $2.43 per share. It comes on top of a final dividend of $1.80 per share.
Rio Tinto is now even more focussed on iron ore, mainly in Australia, and plans to produce 338m-350m tonnes in 2019. Copper production was mixed with a potential major new discovery in Australia offset by a delay at another large site in Mongolia.
Shareholders can anticipate further long-term cash returns, which Rio said should be in a range of 40-60% of underlying earnings. Net debt of $4.1bn has turned into a net cash position of $300m, including cash and highly liquid investments of $13.3bn. That puts it in a strong position in case of a Chinese or commodity downturn.
This £56bn giant trades at just 11.6 times forecast earnings and its forward yield is 5.4%. Numbers like that could put some iron in your portfolio. Rupert Hargreaves reckons it could help you make a million.
Pump it up
Engineer and hydraulic pump maker Weir Group (LSE: WEIR) is up around 3% today after announcing a 13% jump in like-for-like full-year operating profit to £348m, or 22% at constant currency. Orders rose 15% on a like-for-like basis to £2.54bn, with revenues up by the same percentage to £2.45bn. Aftermarket orders exceeding £1bn for the first time. The group also posted an 86% increase in total group cash from operations to £411m.
On Monday, Weir sold its flow control arm to private equity investment firm First Reserve for £275m, as it refocuses its operations. Today, it said that its mining and infrastructure markets should “continue to benefit from positive industry fundamentals with oil and gas activity to improve modestly from current levels.”
The outlook was positive with the group expecting to deliver “another year of good constant currency revenue and profit growth.”
Weir is very much plugged into the global energy market that can be volatile, but the underlying business is strong. It’s down 20% in the past year (although it is hardly alone in that respect). It looks close to fair value right now, trading at 15.1 times earnings, with a PEG of 0.9. A return on capital employed of 18.9% is respectable, as is the 3% forecast yield, which has cover of 2.3.
Today, the dividend was increased 5% to 46.2p a share. Management has shown Weir can maintain its dividends even in tough times. Earnings forecasts are positive, with analysts anticipating 16% in 2019, and again in 2020. A lot depends on the global economy. Will we get that global recession, or are green shoots already emerging?
Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Weir. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.