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The dividend outlook for FMG, Rio Tinto, BHP and South32

As volatility dominates global markets, we examine the dividend outlook for some of Australia’s most important large cap miners.


Source: Bloomberg

Indices Shares Rio Tinto Iron ore BHP Dividend

Shane Walton | Financial Writer, Australia | Tuesday 07 April 2020 17:25

Though equity markets look to have turned somewhat bullish again, listed companies continue to face issues across the board.

Numerous companies are suspending earnings guidance; a new capital raise seems to be announced almost every day; and for companies not raising fresh funds, many are suspending or deferring their dividends in the name of managerial prudence.

The 2020 dividend outlook

Of course, not all companies are cutting their dividends or needing to tap the market for fresh capital. Some, like Fortescue Metals Group, Rio Tinto, BHP Group and South32, remain well positioned to pay above-market dividends in 2020 – according to analysts at Macquarie Wealth Management.






Mind you, for the big three iron ore miners in particular, the commodities market remains a still favourable one, as the 62% Fe Fines iron ore spot price continues to hover around multi-year highs.

Indeed, this is one of the key reasons Macquarie remains so bullish on FMG’s prospects, noting that its status as a pure play iron ore miner puts it in an enviable position – as elevated iron ore prices continue to drive earnings and free cashflow (FCF) momentum.

The investment bank has a 12-month price target of $13.70 on FMG.

More broadly, as iron ore prices continue to bolster free cash flow yields across the big three, Macquarie concludes that ‘The majors with iron ore exposure should continue to pay healthy dividends, with yields well above those offered in other sectors and above that of the ASX100 on average.’

More specifically, Macquarie notes that across the four large cap miners discussed above:

‘The 12-month forward yield is 3% for S32, 7% for BHP, 8% for RIO and 14% for FMG.’

For reference, the ASX 100 benchmark’s average forward yield stands at ~5%.

The investment bank does however note that price weakness across nickel, coal, copper, alumina and oil & gas, have put the commodity baskets of Rio Tinto, BHP Group and South32 under elevated levels of pressure, when compared to FMG, at least.

Rio Tinto, BHP, FMG and South32 share prices in focus

Looking at the broader context, the FMG and Rio Tinto share prices have proven particularly resilient in the last month, outperforming the ASX 200 benchmark, and rising 16.88% and 4.79%, respectively.

By comparison, the BHP Group and S32 share prices have struggled somewhat in that same time-frame, falling 1.24% and 10.93%, respectively.