Rio Tinto’s share price dropped by 3.59% on Thursday morning, trading at $108.39. This decline in Rio Tinto share price has a link to the stock going ex-dividend, marking the date when new buyers no longer receive the upcoming dividend. Despite the dip, analysts remain optimistic about Rio Tinto’s long-term prospects, highlighting its strong performance in key segments.
Figure 1: Rio Tinto Share Price Situation on Thursday (August 15th) Afternoon.
Rio Tinto Shares Dip Despite Strong Earnings
The share price of Rio Tinto Ltd (ASX: RIO) fell by 3.59% on Thursday morning. At the time of writing of this article, the mining giant’s shares are trading at $108.39. This drop may seem concerning at first glance, but it’s not a sign of trouble for the company. Instead, it’s linked to the stock trading ex-dividend.
Understanding the Ex-Dividend Date
Rio Tinto shares went ex-dividend on Thursday, meaning investors who buy shares now will not receive the upcoming dividend. The rights to this dividend are already locked in for existing shareholders. This process often leads to a temporary dip in share price. The decline usually matches the value of the dividend, as new buyers want to avoid paying for something they won’t receive.
Rio Tinto’s Interim Dividend!
At the end of July, Rio Tinto released its half-year results. The company reported a 3% increase in underlying EBITDA to US$12.1 billion for the six months ending June 30th. Solid performances in the aluminium and copper segments drove this growth. Copper EBITDA surged by 67% to US$1.8 billion, while aluminium EBITDA grew by 38% to US$1.6 billion. The minerals segment remained flat at US$700 million, while iron ore EBITDA fell by 10% to US$8.8 billion.
Despite the mixed results across segments, the Rio board kept its fully franked interim dividend flat at US$1.77 per share. This decision represents a 50% payout ratio and a total payout of US$2.9 billion. It translates to a dividend of A$2.68 per share, offering a 2.4% yield based on Wednesday’s closing price.
What Does This Mean for Investors?
While the dip in Rio Tinto share price may cause some concern, it is good news for long-term investors. The ex-dividend date confirms dividend rights, ensuring shareholders receive their payout. This temporary decline is a typical market reaction and does not reflect any underlying weakness in the company’s performance.
Analysts at Goldman Sachs are bullish on Rio Tinto. They have given the stock a “buy” rating and set a price target of $136.60, indicating a potential increase of about 25% over the next year. Goldman Sachs also expects a final dividend of US$2.47 per share, bringing the total annual dividend to US$4.24 (A$6.43) per share. It would result in a full-year dividend yield of about 5.9%.
Key Takeaways for Investors
- Ex-Dividend Impact: Rio Tinto’s share price fell due to the stock trading ex-dividend, not company performance issues.
- Dividend Stability: Rio Tinto maintained its interim dividend at US$1.77 per share despite mixed segment results.
- Analyst Confidence: Goldman Sachs sees significant upside potential in Rio Tinto’s stock and has a 25% price target increase.
- Long-Term Value: Rio Tinto offers income-focused investors a potential full-year dividend yield of 5.9%.
Wrapping Up!
Rio Tinto’s recent share price dip is a natural response to the ex-dividend date and should not alarm investors. The company continues demonstrating strong financial performance in key segments, and analysts remain optimistic about its prospects. Rio Tinto remains a compelling choice for investors seeking stable dividends and long-term growth.
