Dividend investors face big decision as miners cut payouts

It looks like the mining sector’s glory days of mega-dividend yields might be over. Our City writer reports latest developments and what is likely to happen this week.

Big dividend cuts will be announced by mining giants this week as the industry scales back payouts after accounting for £1 in every £6 declared by UK listed companies in 2022.

Ex-London blue chip BHP Group (LSE:BHP) set the tone today by reducing its interim dividend by 40% to 90 US cents a share, its lowest half-year award since the 2020 financial year following a fall in iron ore and copper prices at the end of 2022.

• Invest with ii: Share Dealing with ii | Open a Stocks & Shares ISA | Our Investment Accounts

BHP’s dividend policy is to pay out a minimum 50% of earnings each half year, but the ratio has averaged about 75% in the period between 2018 and 2022. Today’s ratio stood at 69%, which compared with 63% at the onset of the pandemic in February 2020.

The award came as the Australian mining giant revealed a 27% drop in half-year profits to $10.8 billion (£9 billion), driven by a $4.8 billion (£4 billion) reduction in revenue.

Despite the weaker profit and dividend, chief executive Mike Henry remains positive about the demand outlook in the second half of the year and into the 2024 financial year.

He said: “We expect domestic demand in China and India to provide stabilising counterweights to the ongoing slowdown in global trade and in the economies of the US, Japan and Europe.

“The long-term outlook for our commodities remains strong given population growth, rising living standards and the metals intensity of the energy transition, including for steel making raw materials."

What will the rest do?

Rio Tinto (LSE:RIO) is due to post annual results tomorrow, with rising net debt and plans for higher capital expenditure likely to mean it adopts a conservative dividend approach.

Analysts at UBS said recently they expect Rio to moderate returns to a 60% payout for 2022, with the final dividend set to fall 57% year-on-year to $2.04 a share or $3.3 billion (£2.7 billion). “We expect no special dividend for the first time since 2020 as Rio pivots more towards growth.”

For Anglo American (LSE:AAL) on Thursday, the bank is looking for the De Beers owner to maintain a 40% payout ratio and for the second half dividend to fall 60% on the previous half to 67 cents or $800 million (£660.6 million). It does not expect a special dividend as Anglo's net debt is likely to lift materially.

• 10 of the best mining shares for dividend investors
• Daily Trading Flash: 10 most-traded shares 21 February 2023
• ii view: energy powers Glencore profits to a record

Earlier today, Chile’s Antofagasta (LSE:ANTO) recommended a final dividend of 50.5 cents a share for a total of 59.7 cents. This was 58% lower than a year earlier but continues to represent a pay-out ratio of 100%, reflecting the company’s positive outlook for 2023.

It told investors that copper’s fundamentals remain strong, with China showing signs of recovery and with the energy transition underpinning long-term demand for copper.

Antofagasta added that a new desalination plant is due to open at its flagship Los Pelambres mine in the second quarter, a move that should significantly alleviate the water constraints seen over the past 18 months.

Glencore (LSE:GLEN) bucked the dividend trend last week after it reported record earnings of $34 billion (£28 billion) due largely to favourable conditions in coal and for its marketing division.

It announced shareholder returns of $7.1 billion (£5.9 billion), including a base distribution of $5.1 billion (£4.2 billion) to be paid in two tranches and a top-up return of $2 billion (£1.65 billion) that includes a $1.5 billion (£1.2 billion) buy-back. The overall total came in slightly below UBS’s forecast of $7.5 billion (£6.2 billion).

• Insider: two FTSE 100 winners tipped to keep rising
• Tips and tricks on how to generate a sustainable monthly income

The bank has a neutral recommendation on the FTSE 100 stock, adding: “Glencore remains well positioned versus peers and offers superior cash returns, but in our view the change in outlook for gas/coal pricing limits the magnitude of potential upside.”

Copper and iron ore prices have been at a seven-month high in recent days, fuelled by optimism about a recovery for China’s economy after last year’s Covid lockdowns.

However, UBS expects iron ore demand to be broadly flat year-on-year in 2023, reflecting ongoing weakness in China property sales.