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The Rio Tinto (LSE: RIO) share worth slipped in the present day (30 July) after the FTSE 100 mining big reported falling earnings and decrease money flows in its half-year outcomes. Which will sound disappointing, however the general image isn’t fairly so gloomy.
Underlying earnings dropped 16% to $4.8bn, hit by a 13% droop in iron ore costs and continued fallout from 4 cyclones earlier within the yr. Working money move 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 bizarre dividend per share slumped from 177 US cents to 148 cents. That’s a 16% reduce.
Money flows stay immense
These numbers present a enterprise that’s nonetheless producing enormous quantities of money and absorbing market shocks higher than many would possibly count on. Rio’s aluminium and copper divisions each improved efficiency, and its Pilbara operations are recovering effectively. 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 remains 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 by means of dividends.
I’ve adopted this miner carefully and preferred 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 supplies me loads of publicity to world metals markets. Up to now, neither has delivered the sort 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 unbelievable progress story powered this sector for twenty years, however that’s wanting effectively previous its peak now. Even when Beijing launches one other stimulus, a lot of the infrastructure is already constructed. Presumably an excessive amount of of it.
Valuation seems to be compelling
Even so, Rio Tinto is difficult to disregard given in the present day’s price-to-earnings ratio of simply 9.27. That’s low for a enterprise with a lot scale and world attain. The trailing dividend yield stands at a chunky 6.7%. Nevertheless, 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 in the present day. Eight say it’s a Robust 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 maintain 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 would possibly think about shopping for this one for the yield alone. The shares ought to develop from in the present day’s low base, nevertheless it might take time.
