According to an article in the Fairfax Press, analysts at Deutsche Bank are forecasting a $US1.08 dividend to be announced by Rio Tinto Limited (ASX: RIO) on Thursday, when it reports its half-year results.
Moreover, following on from its $US2 billion share buyback announced earlier this year, the analysts expect another share buyback in the new year.
Reductions in capital expenditure and cost cutting will help the miner continue to uphold its promise of increased returns to shareholders. It'll also leave enough cash flow to commit to growth projects in both the Iron Ore and Copper divisions.
According to analyst consensus forecasts, however, it is anticipated Rio will report a 53% fall in underlying earnings for the first half of its 2015 financial year, equating to around $US2.4 billion. That'd be down from the $US5.1 billion it reported last year.
In 2014, Rio's total cash returns to shareholders increased to almost $US6 billion. Meanwhile, total debt decreased by over $US3 billion, and capital expenditure (capex) fell 37%, to $US8.2 billion. Rio's highest ever capex figure was recorded in 2012, at $US17.6 billion.
Hypothetically, if – as expected – Rio's underlying profit fell 53% over the full year, investors could expect a result of around $US4.7 billion. Clearly, that's lower than the $US6 billion of cash returns last year.
However, capex is also expected to fall to around $US7 billion in 2015 of which $US2.5 billion is classified as 'sustaining', leaving the other $US4.5 billion for growth.
You cannot have your cake and eat it too
Unlike some blue chip companies, Rio shareholders cannot have their cake and eat it too. Indeed, because mine cycles are long and extremely costly, taking money away from capex hinders the company's ability to grow in the future.
While Rio's board could increase its dividend and announce another share buyback, personally, if I were a shareholder, I wouldn't be overly enthusiastic about it because I know the chances of long-term growth may diminish.
