Provided we don't witness another steep fall in commodity prices throughout 2015, analysts say Rio Tinto Limited (ASX: RIO) shareholders can expect both larger dividends and the announcement of a share buyback.
According to analysts quoted in an article published by Fairfax, Rio's CEO Sam Walsh is under pressure to deliver on his promise of, "materially increased shareholder returns" when it reports its full-year results in February.
Credit Suisse mining analyst Paul McTaggart believes Rio could announce a buyback of up to $US4 billion, spread over a number of years, as well as a substantial increase to its dividend payout. Both are likely to be well-received by shareholders who've watched the miners' share price fall around 15% over the past year.
UBS mining analyst Glyn Lawcock also expects the miner to announce a buyback, as well as a dividend increase of at least 10%.
According to Morningstar's analyst' consensus forecasts, Rio shares are expected to yield 4.4% fully franked in the year ahead. However with iron ore currently priced around $US70 per tonne (down over 45% in 2014), earnings per share are expected to fall in the near term. In FY13 the steelmaking ingredient accounted for around 90% of Rio's earnings.
On a positive note Rio's debt levels are falling, its payout ratio is smaller than peers like BHP Billiton Limited (ASX: BHP) and a lower AUD will provide some buffer on the decreased iron ore spot price.
Given commodities producers are expected to enter a period of low growth and consolidation in the wake of falling Chinese infrastructure investment, higher yields are likely to be the preferred tactic of CEO's looking to counteract waning investor appetite for stocks in the resources sector.
