Can the Rio Tinto dividend maintain its high yield of 9.9%?

Where is the Rio Tinto dividend heading?

| More on:
Miner looking at his notes.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Rio Tinto Ltd (ASX: RIO) dividend is one of the most popular options out there for income investors.

And it certainly isn't hard to see why!

According to CommSec data, based on the Rio Tinto share price at the time, the mining giant's shares have provided investors with above-average dividend yields over each of the last four financial years. Here are the yields:

  • FY 2018 – 9.7%
  • FY 2019 – 6.6%
  • FY 2020 – 5.4%
  • FY 2021 – 14.2%

So far in FY 2022, which ends 31 December, Rio Tinto has declared an interim dividend of approximately $3.84 per share. On a trailing twelve-month basis, this brings its dividends to $10.47 per share.

Based on the current Rio Tinto share price of $105.93, this represents a trailing 9.9% dividend yield.

Can Rio Tinto's 9.9% dividend yield be sustained?

Rio Tinto is one of the world's largest miners and has exposure to a number of commodities. However, there's no getting away from the fact that iron ore is its biggest contributor to earnings.

In light of this, iron ore price strength (or weakness) has a big impact on its earnings and ultimately the dividends it is able to pay out.

In FY 2021, iron ore EBITDA came to US$27.5 billion thanks to an average iron ore price of US$160 a tonne. That represents approximately 73% of its underlying EBITDA of US$37.7 billion for the period.

Unfortunately, the iron ore futures price is currently fetching US$93.04 a tonne. And while it hasn't traded at this level for the whole of FY 2022, the average price received is still likely to be down meaningfully for the year.

This has been driven by softening demand in China following long lockdowns driven by its zero-COVID policy. And with COVID cases soaring again, demand looks likely to remain subdued in the near term. Particularly given the ongoing property crisis in China, which is a sector that consumes significant amounts of iron ore.

Dividend cut incoming

In light of the above, a note out of Goldman Sachs reveals that it expects Rio Tinto's iron ore EBITDA to fall by over a third to US$17.7 billion in FY 2022. A similarly sharp decline in group EBITDA to US$26.3 billion is also expected.

Unsurprisingly, given this earnings weakness, the Rio Tinto dividend looks unsustainable at FY 2021's levels and a dividend cut is expected.

Goldman Sachs is forecasting the Rio Tinto dividend to come to US$4.80 per share for FY 2022. This equates to $7.20 in local currency at current exchange rates. Based on the latest Rio Tinto share price, this implies a full year dividend yield of 6.8% for investors.

While certainly not as great as FY 2021 or its trailing yield, the Rio Tinto dividend yield still remains among the biggest on the Australian share market.

Goldman Sachs also sees room for the miner's shares to rise further with its buy rating and $114.70 price target.

Should you invest $1,000 in Allkem right now?

Before you buy Allkem shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Allkem wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 3 April 2025

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

A retiree relaxing in the pool and giving a thumbs up.
Dividend Investing

An 8 percent dividend stock paying cash every month

Dreams really do come true on the ASX.

Read more »

Excited couple celebrating success while looking at smartphone.
Dividend Investing

Buy these cheap ASX dividend shares for big yields

Let's find out which shares are being tipped as buys for income investors by analysts.

Read more »

Woman calculating dividends on calculator and working on a laptop.
Dividend Investing

Overinvested in NAB? Here are two alternative ASX dividend stocks

Additional stocks could be an appealing option to improve income diversification.

Read more »

Middle age caucasian man smiling confident drinking coffee at home.
Dividend Investing

3 top ASX dividend stocks that analysts rate as buys

Let's see why these could be top picks for income investors.

Read more »

Real estate agent and client exploring property.
Dividend Investing

This ASX dividend share expects to pay a yield of over 6% in FY25

This business offers pleasing income.

Read more »

Australian dollar notes in the pocket of a man's jeans, symbolising dividends.
Dividend Investing

The ultimate ASX dividend portfolio for long-term income

Let's see what could make up a strong income portfolio right now.

Read more »

Australian dollar notes in a nest, symbolising a nest egg.
Dividend Investing

How 'homemade dividends' can boost passive income

This investment strategy allows passive income-focused investors to expand their investment universe.

Read more »

Man holding out Australian dollar notes, symbolising dividends.
Dividend Investing

2 ASX dividend shares brokers rate as buys with 7% yields

These high yield shares could be great picks for income investors.

Read more »