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Is Rio Tinto Limited’s dividend in danger?

In an intriguing interview with Bloomberg Business, Rio Tinto Limited (ASX: RIO) CEO, Sam Walsh, said his company is “well positioned” to deal with the current slump in commodity prices, especially iron ore.

“We are well positioned — the strongest balance sheet, the least debt of any of the majors,” Mr Walsh said. “Its puts the dividend in a strong position.” 

Indeed, despite speculation that Rio would slash its ‘progressive dividend policy’ in the near future to save its balance sheet, analysts surveyed by Morningstar currently forecast Rio’s dividend to grow by 30 cents, to $2.93 per share in the coming year. This is in stark contrast to BHP Billiton Limited (ASX: BHP), which is forecast to cut its dividend by more than 16%, to $1.34 per share.

“Dividends are very high on our radar screen,” Walsh said. “Personally, for me, they are very, very important.” However, he added, “At the end of the day, it’s a board decision, it’s not my decision.” 

Last week, Anglo American Plc, a fellow UK-listed mining giant, announced it would cut its headcount from 135,000 to 50,000 (i.e. it will axe 85,000 jobs), suspend its dividend and sell billions of dollars of assets.

Foolish takeaway

Rio Tinto, like BHP, is unlikely to go bust in the current commodities price rout. However, survival does not equal market-beating investment returns. And with growing uncertainty in the entire resources sector and a chance it will cut its dividend, despite Mr Walsh’s best intentions; I think there’ll come a time to buy Rio Tinto shares – but it’s not now. I’d prefer to err on the side of caution and wait for conditions to improve, or a lower share price, before hitting the buy button.

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Motley Fool writer/analyst Owen Raszkiewicz has no position in any stocks mentioned.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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