The Rio Tinto Limited (ASX: RIO) share price has seen plenty of volatility over the past year. But the dividend has just gone completely south.
Rio Tinto is one of the biggest miners in the world. Last year, it paid one of the largest dividends on the ASX. But this year, it's paying a much smaller dividend.
But, this year, the S&P/ASX 200 Index (ASX: XJO) mining share decided to cut its final dividend by 46% to US$2.25 per share.
This brought Rio Tinto's total dividend for the year to US$4.92 per share. That represented a 53% cut compared to 2021, though last year included a special dividend. The total ordinary dividend per share was cut by 38%.
Why was the Rio Tinto dividend cut by so much?
The key reason for the dividend cut was that the ASX 200 mining share's profit sank.
Revenue dropped by 13% to US$55.6 billion. Underlying earnings before interest, tax, depreciation and amortisation (EBITDA) declined by 30% to US$26.3 billion. Operating cash flow jumped by 36% to US$16.1 billion. Underlying earnings per share (EPS) declined 38% to US$8.20 while free cash flow sank 49% to US$9 billion.
Rio Tinto said it saw significant movement in pricing for its commodities due to "growing recession fears and a decline in consumer confidence".
Those movements in commodity prices caused a US$8.1 billion decline in underlying EBITDA compared to 2021. That was "primarily from lower iron ore prices" to the tune of US$9.2 billion. It also suffered from lower copper prices and a negative provisional pricing impact.
A key iron ore price index was 25% lower on average in 2022 compared to 2021.
Is this a disaster?
Resource prices change all the time. Positive changes to the resource price can really boost profit, while negative movements are detrimental to short-term profitability. That's why the Rio Tinto share price moves so much.
Compared to 2020, the 2022 operating cash flow was up 2%, underlying EBITDA was up 10%, and underlying EPS was up 6%. The dividend was 6% higher in 2022 than in 2020.
So, it was hard to beat that incredible 2021 year. But that doesn't mean 2022 was a bad year. It would be a mistake to think that 2021 levels of profit were going to continue every year.
Bear in mind too, the Rio Tinto share price is close to its 2021 highs.
Is the Rio Tinto share price a buy?
I like Rio Tinto's moves to own more of the Oyu Tolgoi copper mine in Mongolia. I also like its move into lithium, starting with the Rincon project in Argentina.
The ASX 200 mining share has a very long-term future. However, I just don't think it can achieve a lot of capital growth considering the nature of changing commodity prices and given how mines run out of resources at some point. But a rise in the iron ore price could help boost sentiment this year.
If I were trying to achieve market-beating returns, I'd wait for a lower Rio Tinto share price because of the cyclical nature of markets. But, it could continue to pay good enough dividends, so shareholders may wish to hang on if they bought at a lower price.
