Rio Tinto Ltd (ASX: RIO) reported its half-year results after market close on Wednesday, and passive income investors will have noted a significant decline in the Rio Tinto dividend.
Investors are pressuring the S&P/ASX 200 Index (ASX: XJO) mining stock today on the back of those half-year results, which cover the six months to 30 June.
In late morning trade on Thursday, Rio Tinto shares are down 1.5%, changing hands for $114.12 apiece.
Here's what's happening.
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The shrinking Rio Tinto dividend
The material reduction in the interim Rio Tinto dividend was driven by declining iron ore revenue and increased spending on its lithium business.
On the lithium front, the half-year saw the ASX 200 miner complete its acquisition of Arcadium and form Rio Tinto Lithium.
In its Minerals segment, the miner reported, "Further investment is being made to develop our lithium business, resulting in negative free cash flow of $0.7 billion."
While Rio Tinto's Aluminium, Copper, and Minerals segments all posted half-year revenue growth, it was a different story for its Iron Ore segment. Iron Ore revenue was down 18% year on year to US$12.52 billion.
And Rio's free cash flow for the six months was down 31% year on year to US$1.96 billion.
With margin pressures in its Iron Ore and Minerals segments, Rio Tinto's first-half underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) were down 5% to US$11.55 billion. Underlying earnings declined by a steeper 16% to US$4.8 billion.
Which brings us back to the Rio Tinto dividend.
The board declared a fully franked dividend of US$1.48 per share. That's down 16% from last year's interim dividend of US$1.77 per share. And it's the lowest interim dividend in seven years.
This represents a 50% payout ratio on the miner's half-year earnings, totalling some US$2.4 billion.
If you're looking to score that passive income, you'll need to own shares at market close on 14 August. Rio Tinto shares trade ex-dividend on 15 August.
You can then expect to see that hit your bank account on 25 September.
Unless you'd like to reinvest that money. In that case, the ASX 200 miner's dividend reinvestment plan (DRP) is in effect.
What did management say?
Commenting on the Rio Tinto dividend, CEO Jakob Stausholm said:
Our strong cash flow enables us to maintain our practice of a 50% interim payout with a $2.4 billion ordinary dividend, as we continue our disciplined investment in profitable growth while retaining a strong balance sheet.
The board said it expects Rio Tinto to be in a position to pay fully franked dividends for the foreseeable future.
