Income investors cheer Rio Tinto’s record dividend payout

17th February 2021 12:48

Graeme Evans from interactive investor

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After a terrible 2020 for dividend stocks, income seekers are already having a better 2021.

A bumper $9 billion payout at Rio Tinto (LSE:RIO) and record-breaking results for trading platform Plus500 today boosted the spirits of investors after a bruising 2020 for income.

With the FTSE 350 index duo sharing the spoils from favourable trading conditions, the awards offer another lift for retail investors after Glencore (LSE:GLEN) yesterday resumed dividend payments and Royal Dutch Shell (LSE:RDSB) hiked its fourth-quarter payment in results last week.

Rio's total payout for 2020 of $9 billion is reportedly the biggest in its 148-year history, after it promised a $1.5 billion special dividend alongside April's $5 billion final dividend payment.

The total for the year is 26% higher than a year ago, and also 16% greater than the City consensus at 557 US cents a share, representing a payout ratio of 72% of underlying earnings per share of 769.6 cents.

The latest shareholder bonanza at Rio partly reflects the impact of iron ore prices rising to their highest level since 2011, as demand from China's steel industry soars on the back of the country's economic rebound from Covid-19.

Copper has also been trading at an eight-year high in recent weeks, with its role in driving the transition to a low carbon economy one factor alongside expectations that vaccine roll-outs will trigger a new commodities supercycle.

Rio, which divested the last of its coal businesses in 2018 and no longer extracts fossil fuels, said today that its portfolio of high-quality iron ore, copper, aluminium and mineral assets would have an “essential role in enabling the low-carbon transition”. Rio is planning to put its reporting on climate-related financial disclosures to a shareholder vote from next year.

Despite today's strong results performance, the past year will be remembered for the outcry over events at Juukan Gorge, where the company blew up a 46,000-year-old Aboriginal heritage site to expand the Pilbara iron ore mine in Western Australia.

The anger led to the Jean-Sébastien Jacques being replaced by Jakob Stausholm as chief executive. In his first set of results today, the new boss said: “It has been an extraordinary year – our successful response to the Covid-19 pandemic and strong safety performance were overshadowed by the tragic events at the Juukan Gorge, which should never have happened.”

Rio shares rose 2% to another record high of 6,408p today as investors welcomed the bigger-than-expected cash returns at a time of strong interest in stocks in the commodity sector.

UBS analysts, however, are sceptical about the prospect of further gains and had a price target of 5,500p prior to today's results.

Big boost to top line at Plus500

Plus500 (LSE:PLUS) has also benefited from helpful conditions, with the uncertainty and volatility in global markets, providing an “unparalleled number of opportunities” for its customers trading contracts-for-difference.

Total revenues jumped 146% to $872.5 million, with underlying earnings 168% higher at $515.9 million. The performance led to total shareholder returns of $278.3 million in 2020, which represents 60% of net profit after today's increased final dividend of $0.542 a share and a special dividend of $0.287 a share.

House broker Liberum said the record 2020 results were due to more than just favourable market conditions, however.

Liberum noted: “Its scalable technology and agile marketing algorithms has enabled Plus500 to win significant market share, deliver improved levels of client retention and drive continued improvement in financial returns.”

The broker increased its price target to 1,990p from 1,950p and reiterated its ‘buy’ rating, believing the shares should close the discount on which they currently trade.

The stock remained under pressure today, however, falling 9.5p to 1,369.5p after the company disclosed a new shareholder returns policy with increased emphasis on investing for future growth. This will still mean a pledge to return at least 50% of net profits to shareholders through dividends and buy-backs.

Plus500 said it planned a further share buyback programme of up to $25 million this year, on top of the one worth $67.3 million it announced in August.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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