Is the Rio Tinto Limited share price set to fall?

Is the Rio Tinto Limited (ASX: RIO) share price about to fall?

No one can reliably say for sure if a share price will rise or fall in the short-term on a consistent basis. However, given the 30% fall in Rio Tinto’s share price over the past 12 months, some investors may be inclined to believe it has its back up against the wall.

Indeed, along with rival BHP Billiton Limited (ASX: BHP), whose share price is down 48% in 12 months, the outlook appears bleak.

But the one thing holding up the Rio Tinto share price relative to its international peers could be its dividend.

Indeed, Rio Tinto’s share price has fared 16% better than BHP, 31% better than fellow London-listed miners Glencore Plc and Anglo American Plc and 34% better than VALE SA, over 12 months.

Arguably, it’s the prospects of Rio Tinto’s dividend that puts it on a stronger footing with investors (along with its status as the lowest-cost iron ore producer).

We’ve seen Vale, the world’s largest iron ore miner by volume, recommend its board cut its 2016 dividend. And both Glencore and Anglo American announced they’ll sell assets, cut jobs and dividends to shore up balance sheets. Standard & Poor’s recently cut Glencore’s credit rating to just above ‘junk’ status.

Last week, BHP was slapped with a credit downgrade by the ratings agency and could be forced to lower it again if the miner does not abandon its ‘progressive dividend policy’.

Rio has also touted its progressive dividend policy, which requires the board to declare larger and larger dividends measured in US dollars per share. However, last week, Rio was also placed on credit watch – putting that progressive dividend policy at high risk of being dropped.

Foolish Takeaway

Based on last year’s payout, investors in Rio Tinto stand to receive a 6.2% fully franked dividend. At 8.8% grossed up, it’s likely a big reason many investors are holding Rio Tinto shares in their portfolios.

However, with the company staring the down the barrel of a credit rating downgrade unless we see a significant turnaround in commodity prices, a change in dividend policy could be on its way for Rio shareholders.

And if that happens, it could mean further falls for the Rio Tinto Limited share price. Of course, no one knows for sure, but I wouldn’t want to be caught hanging onto shares waiting to find out.

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Motley Fool writer/analyst Owen Raszkiewicz does not have a financial interest in any company mentioned. Owen welcomes -- and encourages -- your feedback on Google+, 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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