Rio Tinto Ltd (ASX: RIO) shares are in the red on Friday and heading for a poor finish to the week.
At the time of writing on Friday morning, the mining giant's shares are down 3.5% to $162.78.
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Why are Rio Tinto shares falling?
Investors have been selling the miner's shares this morning following the release of its full-year results after the market close on Thursday, which appear to have fallen short of market expectations on both earnings and dividends.
For FY 2025, Rio Tinto reported underlying EBITDA of US$25.4 billion, up 9% year on year, while underlying earnings were steady at US$10.9 billion.
While that represents solid performance in absolute terms, a recent note out of Morgans had forecast EBITDA of US$26.54 billion. That implies the profit result was softer than expected.
The same appears true for the dividend.
Rio Tinto declared a final dividend of US$2.54 per share, bringing total ordinary dividends for the year to US$4.02 per share.
However, Morgans had been expecting total dividends of US$4.54 per share, which would have represented a 13.6% year-on-year increase. The US$4.02 payout therefore looks like a miss relative to those expectations.
Although the dividend still represents a 60% payout ratio, which is the top end of Rio's 40% to 60% policy range, investors may have been positioned for a larger uplift given improving operational momentum and rising copper production.
Management commentary
Rio Tinto's chief executive, Jakob Stausholm, was pleased with the year. He said:
Our solid financial results demonstrate clear progress as we embed our stronger, sharper and simpler way of working. We achieved an 8% uplift in CuEq production1 driven by the ongoing ramp-up of the Oyu Tolgoi underground copper mine and record iron ore production since April from our Pilbara operations.
This strong operational performance, together with a diversifying portfolio and firm cost discipline, underpinned a 9% increase in underlying EBITDA to $25.4 billion and operating cash flow of $16.8 billion. We delivered stable underlying earnings of $10.9 billion, after taxes and government royalties of $10.4 billion.
Why the decline?
In short, the result was solid, but not strong enough to exceed broker expectations.
With both EBITDA and the dividend coming in below Morgans' forecasts, and no surprise upgrade to capital returns, some investors appear to be taking profits.
That seems to explain why Rio Tinto shares are trading sharply lower this morning.
