(Adds CEO quotes, details, background) Feb 27 (Reuters) - Rio...

(Adds CEO quotes, details, background)

Feb 27 (Reuters) - Rio Tinto (RIO) on Wednesday reported its highest annual underlying earnings since 2014, beating market expectations on robust commodity prices, and announced a bumper dividend on divestments and an upbeat iron ore outlook.

Underlying earnings for the 12 months ended Dec. 31 rose to $8.81 billion, from $8.63 billion a year earlier. The figure was significantly higher than a consensus estimate of $8.47 billion compiled by Vuma Financial.

Rio, flush with cash from recent sale of its Grasberg copper mine in Indonesia and other non-core assets, declared a final dividend of $1.80 per share and a $4 billion special dividend of $2.43 per share.

"We have once again announced record cash returns to shareholders," Chief Executive Jean-Sébastien Jacques said, pointing to the miner's 'value over volume' strategy.

Returns of $7.2 billion from a series of divestments also erased Rio Tinto's net debt, leaving it with a net cash position of $255 million.

Iron ore prices have surged after last month's deadly collapse of a dam operated by Vale SA VALE3.SA in Brazil that forced the world's top iron ore miner to cut production, likely boosting earnings this year for its global rivals.

Rio's Australia-listed shares have risen 21 percent so far this year, compared with a near 15 percent jump for its larger, but more diversified, peer BHP Group (BHP) .

The disaster has considerably raised scrutiny of safety standards throughout the industry, in particular tailings facilities. Rio some 100 tailings facilties across 32 sites.

Rio, which also mines aluminum and copper, said in last month's fourth-quarter production update that it expects Pilbara iron ore shipments in 2019 to be between 338 and 350 million tonnes. It maintained that guidance in its results statement.

Last week, the world's biggest miner BHP kicked off the reporting season for global majors and reported a drop in first-half 2019 profit citing rising costs.

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BHP first-half 2019 profit drops on rising costs, missed savings 

Rio Tinto's 2019 iron ore guidance at lower end of forecasts Vale's Brazil disaster to prompt buyers to take more Australian iron ore Vale declares force majeure on some contracts after deadly dam burst

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