Today I am looking at why Rio Tinto (LSE: RIO) (NYSE: RIO.US) looks set to remain a stock market winner for savvy dividend seekers.
Miner primed to dig up delicious dividends
For those on the hunt for barnstorming medium-term dividend prospects, Rio Tinto — like many diversified mining plays across the globe — would appear to fit the bill perfectly.
To start with, investors can take heart from the mining giant’s terrific pedigree as a dependable deliverer of year-on-year dividend growth. Indeed, Rio Tinto has put dynamite under the payout in each of the five past years, and last year’s 192 US cent per share dividend alone marked a 15% improvement from 2012 levels.
City analysts expect this trend to carry on during the next couple of years at least, with the company poised to raise the payout to 210 cents in 2014, up 9.4% from last year. An additional, inflation-smashing 7.6% rise is predicted for the following 12-month period, to
227 cents.
These sizeable dividend hikes create monster yields of 3.9% and 4.3% for this year and next respectively, taking a forward average of 3.3% for both the FTSE 100 and complete mining sector to the cleaners.
Even though earnings have fluctuated wildly in recent times, Rio Tinto’s formidable cash pile has enabled it to continue handsomely rewarding income investors. Although weaker commodity prices have whacked the top line in recent times, Rio Tinto’s aggressive cost-slashing, reduced capital expenditure and divestment programmes have helped to bulk up its wallet.
Indeed, these measures helped the firm’s operating cash flow to leap an impressive 22% in 2013, to $20.1bn.
Rio Tinto’s latest move saw it offload its majority stake in the Clermont thermal coal mine in Australia for $1.02bn just this month to Glencore Xstrata. And the business has plenty of other assets still on the chopping block ready to boost the firm’s cash situation still further.
Of course investors should be aware of the implications of severe economic cooling in commodities glutton China, exacerbating an already-precarious supply/demand balance amongst many of Rio Tinto’s key commodities.
But for those who believe that a steadily-improving global economy, combined with the effect of rising populations on raw materials demand, Rio Tinto could represent a shrewd income pick for those seeking bubbly growth — and consequently strong income prospects — stretching well into the future.