Rio Tinto and Glencore confirm dividend income

Income investors with Rio Tinto Registered Shares (LSE:RIO) or Glencore (LSE:GLEN) in their portfolios are facing contrasting fortunes after two of 2023’s biggest dividend payers announced their latest awards.

Rio Tinto is to distribute 60% of earnings for an eighth year in a row after disclosing a total payout of 435 US cents a share worth $7.1 billion (£5.6 billion), down from $8 billion the previous year.

For UK investors, including those among 18,000 plc account holders who own fewer than 1,000 shares, this will mean a final dividend in sterling terms of 203.77p a share on 18 April.

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That’s an improvement on the previous year’s final dividend of 185.35p, but a 34% lower interim award meant the total across 2023 came in 12% lower.

The payout in today’s annual results was slightly above City forecasts and represented a 6.3% yield at the current market capitalisation. That’s why ii’s head of equity strategy Lee Wild picked Rio above the other miners for this year’s £10K annual income portfolio.

The shares edged 23p lower to 5,207p but Bank of America continues to back the shares to reach 8,000p, driven by a more optimistic view on the outlook for iron ore than the rest of the market. The bank said today’s results contained no major surprises, with the underlying profit of $11.8 billion (£9.35 billion) in line with hopes.

Rio Tinto paid the highest dividend of any London-listed stock in 2021 and 2022, when mining industry shareholders benefited from the surge in commodity prices.

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The world’s second-largest mining company last year fell to fifth in the rankings compiled by Computershare, behind HSBC Holdings (LSE:HSBA), Shell (LSE:SHEL) and British American Tobacco (LSE:BATS).

Glencore rose to third on the list but its position for this year is likely to slide due to no repeat of the $1 billion (£790 million) “top-up” payment handed to investors in September.

That took shareholder returns to $20.3 billion (£16.1 billion) since 2020, comprising $10 billion of base distributions and $10.3 billion of “top-up” returns.

The payments were based on meeting a net debt cap of $10 billion (£7.9 billion), a target level that’s now been halved as the FTSE 100 company works on a potential transformational deal to buy the steelmaking coal business of Canada’s Teck Resources Ltd Ordinary Shares - Class A (New) (TSE:TECK.A).

The $6.9 billion acquisition has unlocked the potential for Glencore to eventually de-merge the combined coal assets, but to do so it will need to reduce leverage towards a revised $5 billion (£4 billion) net debt cap.

Chief executive Glen Nagle said today: “Although there are no 'top-up' returns at this point, the business is expected to be highly cash generative at current spot commodity prices which augurs well for top-up returns to recommence in the future.”

For 2024, the company is planning a $1.6 billion (£1.3 billion) base distribution of 13 US cents share, comprising $1 billion from Marketing cash flows and the rest from Industrial activities. This will be paid in two instalments in June and September.

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Jefferies said the transaction involving Teck’s Elk Valley Resources business (EVR) will be transformational but until the deal completes later this year Glencore is in “something of a holding pattern”.

Lower thermal coal prices are also a near-term headwind, but the bank sees the investment case improving in the second half of 2024 after it highlighted a price target of 560p today.

Sharply lower underlying earnings for 2023 of $17.1 billion (£13.55 billion) came in short of City hopes of $17.4 billion (£13.8 billion), prompting Glencore shares to fall as much as 6% to near a two-year low early today. They later recovered to stand 1.95p cheaper at 388.45p.

Jefferies said: “Investor sentiment regarding Glencore has become negative as a result of weakness in thermal coal prices.

“A rising copper price over time will help, and the acquisition of EVR will be a game changer as this is the world's best metallurgical coal business that should be strongly cash generative for Glencore.

“We expect the company to be positioned for large capital returns after that deal closes, and we expect Glencore shares to begin to outperform again as a result.”