No one can blame investors for focusing more on the downside risks in 2019 than the upside surprises, but investors should be keeping a close eye on the Rio Tinto Limited Fully Paid Ord. Shrs (ASX: RIO) share price and BHP Group Ltd (ASX: BHP) share price.
The odds have shortened considerably for Rio Tinto to announce another billion-dollar plus capital return at the February reporting season after our largest iron ore producer completed the sale of its entire interest in the Grasberg mine for US$3.5 billion on Christmas eve.
The news is helping push Rio Tinto's share price up 1.5% in morning trade to $76.78 when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) is trading just under breakeven at the time of writing.
The announcement on Grasberg follows the completion of the sale of Rio Tinto's Dunkerque aluminium smelter in France for US$500 million twos weeks ago.
The finalisation of the Indonesian Grasberg sale brings the miner's total proceeds from asset sales to US$11 billion over the past two years with Rio Tinto returning or indicated it would return US$18 billion to shareholders.
Still, the market is expecting a new capital return announcement in 2019 and the next reporting season could present the next opportunity for such news.
There's time pressure for ASX-listed companies to distribute as much of their franking credits as possible in the first half of next year too as the federal Labor opposition party have said it would change the rules to stop the refund of franking credits above an investor's tax liability.
BHP is also tipped to announce more capital returns too even though the stock is trading with its special dividend entitlement of US$1.02 per share (the stock goes ex-div on January 10) and the miner has just completed its US$5.2 billion off-market share buyback this month.
Brokers believe BHP has another $3 billion headroom for additional capital returns and have also highlighted the Woolworths Group Ltd (ASX: WOW) and Wesfarmers Ltd (ASX: WES) as capital return candidates in 2019.
What's pleasing is that the market gyration is unlikely to change plans for capital returns – for the big miners at least – as BHP and Rio Tinto have surplus cash on their balance sheet.
The wild swings in commodity prices may even convince their boards to return more capital to shareholders instead of using it to expand their operations. No management team wants to be accused of pumping capital into expansion if commodity prices look to be on a sustained downtrend.
The jury on the outlook for global economic activity (which shapes the outlook for commodities) in the new year and the uncertainty will prompt company boards to act more conservatively – which bodes well for shareholders hoping for more capital and franking returns in 2019.
