The Rio Tinto Limited (ASX: RIO) share price is under the spotlight after reporting its FY21 result and declaring a monster FY21 dividend.
A large dividend is one of the things that I was expecting the ASX miner to reveal.
Rio Tinto’s huge FY21
The iron ore miner revealed a huge increase in profitability after a year that included very strong commodity prices. It was a record financial result.
- Revenue up 42% to US$63.5 billion
- Underlying EBITDA rose 58% to US$37.7 billion
- Operating cash flow grew 60% to US$25.3 billion
- Free cash flow surged 88% to US$17.7 billion
- Net cash of US$1.6 billion
Rio Tinto explained that the recovery of the global economy, driven by industrial production, resulted in significant price strength for its major commodities.
With iron ore, the average realised price per dry metric tonne was US$143.8, an increase of 45%. Aluminium saw an increase of 49% of the average realised price per tonne to US$2,899. The average realised copper price rose 50% to US$4.24 per pound.
Whilst the company was focused on cost control, it did see a rise in operating unit costs, with an increase of inflation, as well as supply chain impacts.
Massive dividend
Rio Tinto reported that its final ordinary dividend would be US$4.17 per share, an increase of 35%. It also declared a special final dividend of US$0.62 per share.
The total annual ordinary dividend is up by 71% to US$7.93 per share, with the total special dividend up 166% to US$2.47 per share.
That brings the full-year dividend to US$10.40 per share, an increase of 87%.
Lithium comments
There doesn’t seem to be a hitch with the $825 million acquisition of the Rincon lithium project in Argentina.
Regarding Jadar, the Serbian lithium project, Rio Tinto said that the Serbian Government has cancelled the spatial plan for the Jadar project and required all related permits to be revoked. Management said that they are disappointed by the announcement and are committed to exploring all options and are reviewing the legal basis of the decision and the implications for its efforts in Serbia.
2022 guidance
It’s expecting to spend around $8 billion on capital expenditure in 2022. In 2023 and 2024 it’s expecting to spend between $9 billion to $10 billion each year.
In terms of production, Pilbara iron is expected to be between 320mt to 335mt, compared to 322mt in 2021.
Alumina production is expected to be between 8mt to 8.4mt, up from 7.9mt.
Aluminium production is expected to be 3.1mt to 3.2 mt, compared to 3.2mt.
Mined copper is expected to be between 500kt to 575kt, up from 494kt. Refined copper production is expected to be between 230kt to 290kt, up from 202kt.
Final thoughts on the Rio Tinto share price and result
This was an excellent result by Rio Tinto, together with a gigantic dividend.
If I were a long-term shareholder, I’d be very happy with this outcome. It was a cash flow machine in 2021 and shareholders are getting the spoils.
With how strong commodity prices have been I’m not sure it’s a buy today. I would want to wait until at least the iron ore price had dropped back to under US$100 per tonne for iron ore. That could be later this year or it could take longer. It’s worth being patient with a commodity business. At the right price, Rio Tinto is one of the ASX dividend shares worth considering.
