Mining sector dividends: what to expect this results season

Glencore (LSE:GLEN) has been named as the miner most likely to surprise when the industry’s heavyweight quartet distributes $9 billion through dividends and buybacks in forthcoming results.

The total estimate by UBS, which also covers Rio Tinto Registered Shares (LSE:RIO), Anglo American (LSE:AAL) and the former FTSE 100-listed BHP Group Ltd (LSE:BHP), compares with the $8 billion handed over in the summer.

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The awards remain in sharp contrast to 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, lower prices and high levels of inventories have been among factors weighing on distributions since then.

UBS is in line with consensus by forecasting that Rio will disclose a second-half dividend of $3.6 billion or 220 US cents a share for a payout equivalent to 60% of earnings across 2024. That compares with 258 US cents last February.

The award had been 417 US cents in February 2022, when Rio also included a special dividend of 62 US cents for a total distribution of $7.8 billion equivalent to an 84% payout ratio.

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The company is due to post a production update tonight before annual results on 19 February.

The BHP dividend alongside half-year results on 18 February is forecast to be 53.6 US cents or $2.7 billion as the payout falls to 50% of earnings.

Since 2018, BHP’s average payout ratio for the ordinary dividend has been 70% but the figure fell towards 50% with June’s annual results.

UBS expects BHP to retain a conservative stance on the payout, particularly given that capital expenditure is set to increase materially in 2025-26.

The iron-ore outlook for China, net debt in the upper half of the company’s target range and the potential for BHP to increase copper exposure through M&A activity are among other factors.

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Anglo American has maintained the 40% payout since the dividend was restarted with 2017 interim results, only topping up returns to shareholders when levels of net debt were much lower in July 2021 and February 2022.

A continuation of the policy on 17 February will mean a much lower dividend for this year of 26 US cents, which is based on UBS’s estimate for earnings 15% below City forecasts.

The bank is above consensus on the total return by Glencore, whose policy is to pay a fixed $1 billion base and a variable element equalling a minimum payout of 25% of the free cash flow of the group's Industrial businesses in the prior financial year.

In 2021, Glencore updated its policy to include "top up" shareholder payments in line with managing net debt at the low end of its target range of $10 billion-$16 billion. The top-ups have been on hold since a transformational deal to buy the steelmaking coal business of Canada’s Teck Resources.

UBS expects Glencore to declare a base distribution of $1.8 billion or 15 cents per share, with the first tranche of $900 million to be paid in May and repeated in September. It also forecasts a buyback of $1.8 billion, which will lift net debt to $10 billion.

The bank thinks a buyback is more likely than a special dividend given that Glencore shares are still below 400p.

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There’s also potential for the buyback to be enhanced by a further $1 billion if an agribusiness merger involving Glencore’s interest in Viterra completes before the results on 19 February.