The Rio Tinto Limited (ASX: RIO) share price will be on watch today after reporting its FY20 result and announcing a monster dividend.
What did Rio Tinto report in FY20?
The big iron ore miner reported that its underlying EBITDA (EBITDA explained) climbed by 13% to US$23.9 billion thanks to strong commodity prices and good operational performance. Sales revenue rose by 3% to US$44.6 billion.
Net operating cashflow increased by 6% to US$15.9 billion and free cashflow rose by 3% to US$9.4 billion.
Looking at the profit figures, net earnings went up 22% to US$9.77 billion and underlying profit / earnings per share (EPS) grew 21% to US 769.6 cents.
Rio Tinto dividend and balance sheet
The strong cashflow performance of the business allowed it to reduce net debt by US$3 billion to finish the year with net debt of US$660 million.
Not only did Rio Tinto improve its balance sheet, but the board also declared a final ordinary dividend of US$3.09 per share and a special dividend of US$0.93 per share. In total, the FY20 dividends amount to 72% of underlying earnings. The total dividend for the year is US$5.57 per share.
The company spent $625 million on exploration and evaluation in 2020. It said that it made progress with its greenfield programmes and advanced its evaluation projects. The miner mentioned Resolution Copper in Arizona, Jadar lithium-borates in Serbia and Winu copper-gold in Western Australia.
Guidance
Rio Tinto expects to spend $7.5 billion in each of 2021 and 2022, it was previously expecting to spend around $7 billion in each year. It’s also expecting to spend $7.5 billion in 2023.
In 2021, Rio Tinto is expecting iron ore costs to be US$16.7 per wet metric tonne (wmt) to US$17.7 wmt, compared to US$15.4 per wmt in 2020. This mainly reflects a 12% strengthening of the Australian dollar, given that most of the Pilbara costs are in Australian dollars.
This year, Rio Tinto is expecting to produce 325 Mt to 340 Mt, compared to 331 Mt in 2020. So that is essentially saying that Rio Tinto is expecting another strong year of production.
Summary thoughts
For investors focused on dividends, this was a great result with a big dividend increase and solid profit generation. It’s hard to say how long this will last – will China keep buying huge amounts of iron ore longer than expected? I don’t know, it’s hard to say – it normally isn’t a good idea to buy at the top of the market cycle.
Before you consider Rio Tinto, I suggest getting a free Rask account and accessing our full stock reports. Click this link to join for free and access our analyst reports.
