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Rio Tinto (LSE:RIO) shares have soared 66% up to now six months. Do full-year outcomes launched Thursday morning (19 February) present us why? There’s one speedy standout for me.
CEO Simon Trott mentioned: “Our strong cash flow and balance sheet enable us to sustain a 60% payout ratio with a $6.5bn ordinary dividend, making it the 10th consecutive year at the top end of the range.”
Rio Tinto seems like a little bit of a money cow. The corporate began life in 1873 with the acquisition of a mine on the river of the identical identify in Spain — a website that’s produced copper, silver and gold since antiquity. And since then, it’s been rewarding buyers properly — although with up-and-down spells in a really cyclical market.
Regardless of the CEO’s glowing phrases, Rio Tinto shares fell greater than 3% in early buying and selling. Let’s see why.
Backside-line revenue flat
Underlying EBITDA in 2025 rose 9% on the earlier 12 months. However free money circulation fell 28%, and revenue after tax dipped 14%.
Underlying earnings per share didn’t budge. And whereas the whole dividend payout may need been on the prime finish of hopes, per share it was unchanged.
It wasn’t an amazing 12 months for iron ore, with the worth dipping between December 2024 and a 12 months later. And prices per tonne at Rio’s Pilbara operation rose. In opposition to that, nonetheless, copper costs had a robust 12 months, boosted by excessive demand from AI-led knowledge centre growth.
Total, that is what we must always count on if we purchase shares in a miner or different commodities producer. Our income will rise and fall together with world costs for the stuff they produce. I don’t see any underlying downside with the corporate right here — it’s simply been doing what it ought to do, for yet another in a protracted line of years.
What subsequent?
I see some components very a lot in Rio’s favour. However some issues depend towards it too. I like the worldwide focus — if the US needs to slap tariffs on steel imports, China is barely to blissful to maintain on shopping for. Nonetheless, even with a world outlook, there’s a good bit of dependency on the world’s two largest economies — and each might be politically unsure.
Additionally, short-term metals and minerals costs can fluctuate pretty wildly. And which means some years of falling costs, and due to this fact income, are nearly sure.
Forecasters do have earnings and dividend progress on the playing cards over the subsequent few years. The factor is, that may very well be upended within the quick time period if commodities markets flip down. And having an organization’s revenue so depending on components exterior of its management is all the time a danger.
A money cow, or not?
I believe buyers taking a look at latest share worth rises and hoping for positive aspects although 2026 ought to presumably take into account different alternatives. There’s an excessive amount of scope for short-term volatility for my cash.
However for individuals who see a long-term money stream — following a 4% dividend yield for 2025, lined 1.7 occasions by underlying earnings? I very a lot charge Rio Tinto shares as an funding to contemplate for the a long time forward.
