The iron ore price — and iron ore miners' shares — were supposed to fall in 2016.
I guess someone forgot to tell Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP) shareholders…
Rio Tinto, one of largest mining companies in the world, derives the lion's share of its revenue and profit from iron ore. Leading into 2016, commentators were forecasting iron ore prices to hit rock bottom. Instead, they have rallied more than 41% this year, according to Indexmundi.com.
Rio Tinto's share price surge coincided with the miner's decision to cut its interim dividend to US45 cents per share from $US1.07 last year. However, the company's management committed to a full-year dividend of at least $US1.10 per share, which appears to have reassured the market.
What's more, Rio Tinto has also made inroads to reducing its debt pile. The company slashed $US4.5 billion of debt in the first half of 2016 and plans to undertake another $US3 billion debt reduction programme given its significant cash flows.
The company's efforts have not been missed by the analyst community. Morgan Stanley and Credit Suisse analysts recently slapped Rio Tinto shares with an updated price target of $71 and $70, respectively, according to Dow Jones Newswires.
Foolish Takeaway
Like all miners, Rio Tinto shares are at the mercy of commodity prices which for the most part have been strong in 2016. Although the company could be in for more of the same in 2017, personally, I'm not prepared to bet on it.
I'd rather buy other quality dividend shares without taking on the commodity risk associated with iron ore or copper.
