Rio Tinto Profit Doubles in 1H17, Offers Record Dividend

Files with dividend heading - graphics photo - August 2017Global miner Rio Tinto Plc (NYSE: RIO) reported fiscal 2017 first-half results that more than doubled compared to the same period last year. However, the 1H17 underlying earnings were below analysts’ estimates. Thus, the stock of Rio Tinto continues to remain range bound between $45 and $47. On the basis of a 145% jump in half-yearly dividend and optimistic outlook of the management, we anticipate the stock to begin an upward journey soon.

The Anglo-Australian miner reported first-half 2017 revenues of $19.91 billion, compared with $16.29 billion in the first-half of 2016. Net earnings attributable to Rio Tinto shareholders were $3.31 billion in 1H17, up from $1.71 billion in the similar period last year.

During the first-half of 2017, underlying earnings increased to $3.941 billion, or $2.194 per share, from $1.563 billion, or $0.87 per share, in the first-half of 2016. The Wall Street analysts had anticipated earnings of $4.19 billion in the first-half of 2017.

Underlying earnings from iron ore division increased 87% y-o-y to $3.26 billion. Iron prices continue to remain volatile this year, with prices trading in a range of $53 to $95, and now at about $74 per ton. Energy & minerals business, which include coal trading, reported earnings of $652 million in 1H17, up 695% from $82 million in 1H16. Coking coal prices have increased 269% in the first-half of 2017. The commodity rally ensured that even the Aluminium division posted a 101% y-o-y increase in earnings to $759 million.

The company also increased the half-year dividend to $1.10 per share, from $0.45 per share declared in the year-ago period. It is the highest interim dividend ever declared by the miner. Overall, Rio Tinto would be returning $3 billion to shareholders. That includes $2 billion and $1 billion in the form of dividends and share buybacks, respectively.

The company’s CEO Jean Sebastien Jacques stated that there is a possibility of another dividend payment, after the company completes the $2.45 billion sale of Coal & Allied to Yancoal Australia in the third-quarter of 2017. Rio Tinto also stated that capital expenditures will increase by about $500 million to $5.50 billion in 2018 and 2019.
Thus, robust 1H17 underlying earnings, strong commodity prices, and 145% increase in dividend is expected to bring in value buying near yesterday’s closing price of $45.40.

The stock has received support at 44. Furthermore, the Chaikin money flow indicator has turned positive. The bullishness is also confirmed by the RSI indicator, which is near the oversold region. Thus, we can expect a bounce back in the stock price.

Rio Tinto - Technical Analysis - 23rd August 2017

To gain from the uptrend, we plan to buy a call option valid for one week. The entry would be made when the stock trades near 45 in the NYSE.

Disclaimer: The trading analysis offered here is our opinion. It is not provided as trading advice, merely an indication of our trading plan. We cannot guarantee success and we encourage traders to incorporate a strong money management strategy to limit losses. Please use this article as part of your own research before formulating strategies prior to trading.