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Rio Tinto slashes dividend as outlook for FTSE 100 payouts darkens

Rio Tinto is a major global metals producer with extensive operations in Western Australia  (Rio Tinto )
Rio Tinto is a major global metals producer with extensive operations in Western Australia (Rio Tinto )

Rio Tinto slashed its annual payout to shareholders today in what may be the beginning of the end of a record-breaking run of dividends that helped power the FTSE 100 to its highest ever level.

The Anglo Australian mining giant will return $8 billion (£6.6 billion) to investors in total for 2022, down by around 50% from the record $17 (£14 billion) total a year earlier, which included a one-off special payment.

The bumper payday for 2021 tracked a year of recovering metals prices as much of the world dropped pandemic restrictions was the second biggest in the history of the FTSE 100, just behind Vodafone’s return of £18 billion in 2014, after a $130 billion sale of its stake in Verizon Wireless.

Rio’s cut came after a slower recovery in demand from China in 2022, amid severe Covid control measures in the world’s top steelmaking nation and the company’s biggest market. Tumbling metals prices drove a 38% slump in full-year earnings of $13.3 billion (£11 billion).

It followed Antofagasta’s 60% dividend cut yesterday. City experts predict a trend in the making, with the series of headline-grabbing payouts from gas and electricity utilities, fuelled by sky-high energy prices following Russia’s invasion of Ukraine, unlikely to be repeated.

That leaves questions surrounding the sustainability of the record-breaking run that took the FTSE 100 above 8,000 points for the first time ever, not least as the pound’s rise makes it more expensive internationally.

James Hughes, chief market analyst at Scope Markets, said: “with Rio Tinto being the latest resource company to announce a dividend cut and the macroeconomic picture starting to pivot as hopes grow UK PLC might avoid tipping into recession, questions have to be asked as to just how sustainable these recent gains will be.

“Banks and energy companies still have the potential to deliver in terms of shareholder returns, but as sterling rises UK stocks will also be lifted out of bargain bucket territory by overseas investors.”

Rio Tinto hit the headlines last month when it lost and then recovered a highly radioactive capsule, the size of a pea, when transporting it in Western Australia. It lowered its capital expenditure guidance for 2023 today to $8 billion, down from a previous range between $8 billion and $9 billion.

It reported lower average iron ore prices for 2022, of $106 per dry metric tonne, down from $143.8 per in 2021. It left cost estimates and profit guidance for 2023 on hold.

Rio Tinto’s shares fell 184p, or 3% to 6020p.