The next miner to pay a special dividend after Rio Tinto isn’t BHP

Investors got a nice $1.45 billion special dividend surprise from Rio Tinto Limited (ASX: RIO) this evening, and if you are wondering which S&P/ASX 200 (Index:^AXJO) (ASX:XJO) miner is next to gift such a handout, it isn’t BHP Group Ltd (ASX: BHP).

I am not suggesting that BHP won’t pay a special dividend as it sure has the cash to if it wanted, but Whitehaven Coal Ltd (ASX: WHC) will have the chance to beat the Big Australian to the punch.

Whitehaven reports its result on August 15 while BHP will only announce its results the week after. This means the coal miner will have an earlier opportunity to woo investors with the special payout and Macquarie Group Ltd (ASX: MQG) believes management will declare one.

Dividends galore

“WHC reiterated its dividend payout policy of 25%-50%. However, given delays for Vickery project approvals, strong free cash flow and a well-managed balance sheet, we believe there is scope for a special dividend,” said the broker.

“We have forecast a final dividend of A$0.27, which includes a $A0.12 base dividend and a A$0.15 special. Net debt post dividend after June half 19 results is below levels following December half 18 results.”

It will be raining dividends for mining investors as Rio Tinto and Whitehaven aren’t the only ones rewarding shareholders with cash handouts.

BHP and Fortescue Metals Group Limited (ASX: FMG) are also likely to join the parade with dividend surprises.

“Buoyant iron ore prices have driven strong free cash flows for the major iron ore miners. RIO, BHP and FMG are generating monthly free cash flow of ~US$1.3b, ~US$1.2b and ~US$0.5b at spot prices, respectively,” added Macquarie.

It believes there is dividend upside of US$0.70 for BHP and A$0.30 for Fortescue. Macquarie has an “outperform” recommendation on all four stocks.

Not all can sit on the dividend throne

But this doesn’t mean that all ASX 200 miners are in a good position to pay a special dividend. The broker is cautious on two in particular – South32 Ltd (ASX: S32) and Alumina Limited (ASX: AWC).

“S32 net cash position of US$260m following the payment of our assumed US$0.046 dividend for June half is lower than that derived at end of the December 18 half. With commodity price headwinds and rising capex commitments, we do not expect additional special dividends,” said Macquarie.

“We have recently reduced our AWC dividend assumptions to US$0.05, as we have lowered our cash sweep assumption from the AWAC JV [joint venture]. We do not forecast additional dividend from AWC but note the company pays out ~100% of FCF [free cash flow] and thus the dividend level is reliant on the cash sweep.”