Dividend Kings

Our themes are based on investment strategies

The Dividend Kings theme explores the equity research and video content we have for stable dividend paying companies. What rules do we use? Uk-listed companies with: Current Dividend Yield greater than 4% | 5-year net Dividend Growth Rate greater than 4% | Latest Dividend Coverage Ration greater than 1.2x  

Dividend Kings

The Dividend Kings theme explores the equity research and video content we have for stable dividend paying companies. 

What rules do we use? Uk-listed companies with: Current Dividend Yield greater than 4% | 5-year net Dividend Growth Rate greater than 4% | Latest Dividend Coverage Ration greater than 1.2x  

Latest Content

Were the shareholders' rewards meritorious?

  • 09 Feb 17

Rio Tinto’s FY16 operating results (i.e. group-level sales and underlying operating profit) came broadly in line with AV’s estimates, with material improvements achieved in H2 16. However, the announcement of lucrative dividends (and buy-backs) and the reversal of hefty forex losses on external debt were major surprises. Reasonable ‘group’ operating performance… H2 and FY16 sales were $18.3bn (+8.5% yoy; +18% hoh) and $33.8bn (-3% yoy), respectively. Commodity prices continued to recover in H2 (iron ore and met coal in particular), which along with healthy volumes resulted in pronounced sequential sales growth. However, the full-year top-line was impacted by below par copper operations and material aluminium (premia) weakness, more than offsetting the volume-driven resilience in iron ore. Adjusted operating profit came in at $3.8bn (+47% yoy; +45% hoh) and $6.5bn (+2.4% yoy) for H2 and FY16, respectively, with a full-year operating margin of 19.2%. The full-year (pre-tax) cash cost improvements (well spread across segments) amounted to $1.6bn (o/w $0.6bn were realised in H1). Clearly the operating disappointments of H1 were more than compensated for in H2. However, we were surprised with Rio reporting $611m of forex gains on external debt and intragroup balances in FY16 vs. average annual losses of >$3bn during FY13-15. H2 reported net income came in at $2.9bn (vs. $1.7bn in H1 FY16 and a loss of $1.7bn in H2 FY15) while the full-year figure was $4.6bn vs. a loss of $866m in FY15. Handsome shareholders’ returns Citing the material recovery in the bottom-line, Rio announced a full-year dividend of USc170 per share, though down 21% compared with FY15. This payout was much higher than management’s earlier commitment of a minimum dividend of USc110. A $0.5bn share buy-back (of the PLC shares) was also announced. Despite the profitability resilience, reported OCFs were down (10% yoy) to $8.5bn as working capital efficiencies (sizeable in the earlier years) reversed in FY16. Yet, a combination of conservative capex (-36% of $3bn) and asset sales helped net debt reduce (29% from FY15-end) to $10.2bn. Management guides for aggressive capex of $5bn and $5.5bn (of which sustaining capex would be c.$2bn) during FY17 and FY18, respectively.

 

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