Some analysts said that Australian iron ore giants are expected to limit dividend payments in their half-year results announced this week to keep sufficient cash on hand for large-scale capital expenses related to the energy transition.
The Zhitong Finance App learned that some analysts said that Australian iron ore giants are expected to limit dividends in their half-year results announced this week to keep sufficient cash on hand for large-scale capital expenses related to energy conversion.
BHP Billiton, Rio Tinto, and Fortescue will announce financial results on February 20, February 21, and February 22, respectively. The average iron ore price of $120 per ton, which is well above historical levels, supports the profit performance of BHP Billiton (BHP.US), Rio Tinto (RIO.US), and Fortescue (FSUGY.US). Barrenjoey analyst Glyn Lawcock said, “As their focus shifts from returns to growth, dividends will be slightly more conservative than recently.”
According to reports, BHP Billiton's dividend policy is to pay at least 50% of each half of the earnings. Analysts now expect the latest dividend payout to be cut in half. UBS said, “We expect BHP Billiton to be more conservative in terms of dividends because after the acquisition of OZ Minerals, the company's net debt has risen to the upper end of the target range. The company's capital expenses will also increase, and it is also facing a settlement related to the joint venture Samarco that is currently being negotiated.”
BHP Billiton announced a $5.7 billion impairment last week relating to Samarco's tailings dam accident and Western Australian nickel business. The company is also preparing to put its Jansen potash project into operation in Canada. UBS anticipates that BHP Billiton's dividend may be “slightly conservative” at $0.66, compared to market expectations of $0.70.
Furthermore, UBS anticipates that due to strong operating performance and realized prices, and lower net debt, Rio Tinto will announce a dividend of $2.74, far higher than the market's general expectation of $2.43. However, Rio Tinto is not expected to announce additional shareholder returns as preparations are being made for the Simandou iron ore joint venture project in Guinea and the expansion of the Oyu Tauragai copper mine in Mongolia.
Morgan Stanley, on the other hand, anticipates that Rio Tinto will stop paying special dividends. “Despite Rio Tinto's strong balance sheet, we don't think Rio Tinto has the potential to further return capital due to growing capital expenditure plans (particularly in Simandou and Oyu Tauragais),” the bank said.
Analysts also expect Fortescue's dividend to be 67.8 cents. The company's dividend policy is to use 50%-80% of potential net profit after tax as dividends. Today, analysts believe dividend payout ratios will be at risk as the company increases its investment in the energy sector.