Rio Tinto (ASX:RIO) share price on watch after declaring US$9.1bn dividend

This mining giant is rewarding shareholders with a big dividend…

| More on:
Young female investor holding cash ASX retail capital return

Image source: Getty Images

The Rio Tinto Limited (ASX: RIO) share price will be one to watch closely on Thursday.

This follows the release of the mining giant’s half year results this afternoon.

How did Rio Tinto perform in the first half?

As was widely expected, Rio Tinto was a very positive performer during the six months ended 30 June thanks to strong commodity prices.

According to the release, the company reported consolidated sales revenue of US$33,083 million for the half. This was up 71% on the prior corresponding period.

Things were even better for its earnings thanks to margin improvements. Rio Tinto revealed a 156% increase in underlying earnings to US$12.2 million. This equates to earnings per share of 751.9 US cents.

Also more than doubling during the half was the company’s free cash flow. It increased a massive 262% to US$10,181 million. And given the strength of Rio Tinto’s balance sheet, the company will be returning a significant amount of its free cash flow to shareholders.

The release explains that the Rio Tinto Board has declared a fully franked ordinary interim dividend of $3.76 per share. This is up 143% from the same period last year. But it isn’t stopping there. A fully franked special dividend of US$1.85 per share has also been declared.

This brings the total dividend for the period to US$5.61 (A$7.62) per share, representing 75% of earnings. Based on the current Rio Tinto share price of $132.22 and current exchange rates, this equates to a 5.75% yield.

How will the Rio Tinto share price react?

According to a note out of Citi, its analysts were expecting an underlying profit of US$12,290 million and an interim dividend of US$7.22 per share.

Rio Tinto has fallen short of Citi’s expectations on both its earnings and dividend, which could potentially weigh on the Rio Tinto share price tomorrow.

Management commentary

Rio Tinto’s new Chief Executive, Jakob Stausholm, was pleased with the half. He notes that it was underpinned by strong demand for its products.

He said: “Government stimulus in response to ongoing COVID-19 pressures has driven strong demand for our products at a time of constrained supply resulting in a significant spike in most prices. We focused on safely running our world-class assets and supplying products to our customers. This enabled us, despite operational challenges, to deliver record financial results with free cash flow of $10.2 billion and underlying earnings of $12.2 billion, after taxes and government royalties of $7.3 billion.”

“We are further strengthening the portfolio with our commitment to fund the high-quality Jadar lithium project, which signals our large-scale entry into the fast-growing battery materials market,” he added.

The Rio Tinto share price is up 15% in 2021.

Should you invest $1,000 in Rio Tinto right now?

Before you consider Rio Tinto, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Rio Tinto wasn't one of them.

The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of August 16th 2021

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Resources Shares