Mining sector dividend forecasts: summer 2024
As the big mining companies prepare to publish either half-year or annual results, one expert thinks investors are too optimistic about shareholder payouts this time.
16th July 2024 14:12
by Graeme Evans from interactive investor
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Dividend income from Glencore (LSE:GLEN), Rio Tinto (LSE:RIO), Anglo American (LSE:AAL) and BHP Group Ltd (LSE:BHP) is set to fall 10% in total as the mining industry’s heavyweight quartet get ready to post results over the summer.
UBS analysts forecast overall half-year distributions worth $8 billion (£6.2 billion), down from December’s $9 billion amid continued earnings pressure.
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The awards represent another step back from 2022’s peak for dividend distributions, when miners accounted for £1 in every £6 declared by UK listed companies.
The uncertain trends for iron ore demand in China’s steel industry and one-off operational or corporate factors have weighed on the sector during the first half of the year.
In a production update earlier today, Rio Tinto reported iron ore shipments below City forecasts after a derailment in mid-May meant the loss of six days’ rail capacity.
It also lowered full-year alumina production expectations due to gas pipeline disruption in Queensland and said copper output will be near the bottom end of its forecast range.
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The update, which was posted ahead of half-year results due on 31 July, left Rio Tinto shares down 170p to their lowest level since April at 5021p.
The company’s policy is to pay a dividend between 40% and 60% of its earnings through the cycle, with UBS forecasting an award of $3.1 billion or 193 US cents (148.8p) share for a 50% ratio.
The award had been 376 US cents in August 2021, when Rio also included a special dividend of 185 US cents for a total distribution of $9.1 billion equivalent to a 75% payout ratio.
UBS said: “Looking at the last eight reporting periods, Rio typically pays out 50% of earnings at the interim; the final dividend is typically sufficient to get the full-year payout ratio up to 70-80%, although this has ranged from 60% to 160%.”
The bank believes the market is too optimistic about the level of dividend awards at Glencore and BHP when they report results on 7 August and 27 August respectively.
For Glencore, UBS is 20% below the consensus after forecasting $800 million, or about six US cents (4.63p) a share, with no top-up award due to the recent Teck steelmaking coal acquisition.
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However, UBS sees potential for a special distribution to be announced in February if Glencore decides to retain its coal operations rather than split them into a separate entity.
BHP’s dividend policy is to pay a minimum of 50% of earnings each half. Since 2018, the average ratio for its ordinary dividend has been about 75%, with the lowest being 56% last December.
UBS forecasts a dividend of 69 US cents (53.21p) the equivalent to $3.5 billion with the second-half results. This compares with the City consensus of 77 US cents and represents a 53% payout ratio against underlying earnings. In August 2022, special and ordinary dividends took the payment to 561.4 US cents or $8.9 billion.
The bank said: “We expect BHP to be conservative with the dividend payout as it is set to lift capex materially in 2025-26, the outlook for China/iron ore is uncertain, net debt is still in the upper half of its target range, and as it seeks more copper exposure through M&A.”
Anglo American has stuck to its 40% payout ratio since the dividend was restarted in 2017, only topping up returns to shareholders in July 2021 with a $1 billion special dividend and $1 billion buyback, and in February 2022 with a 50 US cents special dividend.
With net debt set to lift to about $11 billion due to working capital outflows, high capex and soft production/prices, the bank expects Anglo to keep its payout ratio at 40% on 25 July. This leads to a forecast of 41 US cents (31.62p) a share or $500 million, 10% above the City consensus.
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