Rio Tinto plc (ADR) (NYSE:RIO) Announces Major Dividend Cut After Profit Fall
Rio Tinto plc (ADR) (NYSE:RIO) issued out a warning that it will slash dividends following a fall in profit of 51% in 2015.
The company further added that the 2016 dividends will be cut by half due to the prevailing low prices for most of the minerals that are mined by the firm. The dividend warning sets the stage for what to expect from the company’s dividend performance for the rest of the current year. Industry analysts claim that the shortfalls in commodity prices have affected all of the mining companies.
BHP Billiton Limited (ADR) (NYSE:BHP) has especially been whipped hard due to its big oil and gas division. Rio Tinto has a bit of a protective cover because it does not deal with oil and gas. It focuses on mining iron ore, diamonds, coal, copper and aluminum.
The current situation means that the company has to temporarily shelf its promise to pay higher dividends. BHP Billiton is also taking a similar dividend cut approach following the pressures associated with the mining activities and the commodity prices. While the situation for the firms was tough 2015, the outlook for 2016 looks to be even more difficult according to Rio Tinto’s Chief Executive, Sam Walsh.
According to Walsh, the rapid decline in commodity prices and the uncertain nature of the industry over the last two months has affected the global economy. He further added that it has provided an incentive for the company to evaluate how it utilizes its funds.
Rio Tinto managed to stick to a steady dividend payout of $2.15 a share for 2015 despite how tough the year was for the firm. It has also announced that it will limit the dividend cuts to 49% and will not pay less than $1.10 in 2016. Analyst, Peter O’Connor from Shaw and Partners in Sydney stated that the announcement of dividend cuts plus the new dividend pricing will eliminate any doubts by investors.
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