An attractive feature of owning Rio Tinto Ltd (ASX: RIO) shares and other iron ore miners is the potential dividend payouts.
ASX mining shares tend to trade on a relatively low price/earnings (P/E) ratio, and some have fairly generous dividend payout ratios. This combination typically results in a pleasing dividend yield for shareholders.
Of course, the profit generation of mining stocks can be very volatile because commodity prices fluctuate regularly.
Let's review the dividend forecasts for Rio Tinto by the leading broker, UBS, for the next few financial years to 2028.
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UBS predictions for FY24
The Rio Tinto financial year follows the calendar year, so there are still a couple of months left of the company's 2024 financial year.
UBS said in a recent note that "looking ahead, China's improved risk-reward and Cu/Al/iron ore price momentum are key catalysts" for the company. In other words, Chinese economic stimulus and commodity prices (copper, iron and aluminium) could play a major role in what happens next.
UBS noted that Rio Tinito's African iron ore project Simandou was on track for its first production of tonnes by the end of 2025.
After what has already happened this year, UBS is projecting that Rio Tinto could cut its annual dividend per share to US$3.90.
Expectations for FY25
After a difficult 2024, during which the lower iron ore price harmed profitability, UBS is forecasting that Rio Tinto's profit could increase by more than 10% over the 2025 financial year.
Due to the expectation of higher earnings, the broker suggests that the Rio Tinto dividend could jump 13% to US$4.42 per share.
How about FY26?
The ASX mining share's profit is expected to rise again in the 2026 financial year. While projections aren't guaranteed, any profit rise is good for a miner, as earnings could decline in any particular year.
In FY26, UBS is projecting the Rio Tinto dividend could rise by 2.5% to U$4.53 per share.
Pleasingly, the miner's balance sheet is expected to turn into a net cash position of $223 million after several years of net debt.
Here's the prediction for FY27
Commodity prices could change significantly between now and the 2027 financial year, so keep in mind that UBS' forecasts are based on several resource price assumptions that may be significantly different from reality.
The broker is currently projecting the profit and dividend could decrease slightly in FY27. The dividend is projected to drop 0.5% to US$4.51 per share.
Finally, FY28
The 2028 financial year could be the best year of this series of projections from UBS. Rio Tinto's copper and Simandou earnings may have significantly ramped up by this point.
According to UBS, the profit of the ASX mining shares could jump another 10% in FY28.
The broker suggests the Rio Tinto dividend could rise by 11% to US$5.01 per share. At the current share price, that would translate into a dividend yield of 6.3% at the current foreign exchange rate.
