The Rio Tinto (LSE: RIO) share price slipped today (30 July) after the FTSE 100 mining giant reported falling earnings and lower cash flows in its half-year results. That may sound disappointing, but the overall picture isn’t quite so gloomy.
Underlying earnings dropped 16% to $4.8bn, hit by a 13% slump in iron ore prices and continued fallout from four cyclones earlier in the year. Operating cash flow slipped 2% to $6.9bn, while underlying EBITDA fell 5% to $11.5bn.
The dividend also took a knock. Management stuck to its policy of returning half of earnings to shareholders, which meant an interim payout of $2.4bn. That’s still a big number, but the ordinary dividend per share slumped from 177 US cents to 148 cents. That’s a 16% cut.
Cash flows remain immense
These numbers show a business that’s still generating huge amounts of cash and absorbing market shocks better than many might expect. Rio’s aluminium and copper divisions both improved performance, and its Pilbara operations are recovering well. CEO Jakob Stausholm praised “very resilient financial results with an improving operational performance”, helped by the group’s increasingly diversified portfolio.
Despite the earnings drop, Rio is still a money-printing machine. Net earnings came in at $4.5bn, but that was down 22%. It still poured billions into shareholders’ pockets through dividends.
I’ve followed this miner closely and liked the look of its cash flows. But I still haven’t pulled the trigger on buying the shares. That’s partly because I already hold rival FTSE 100 miner Glencore, which gives me plenty of exposure to global metals markets. So far, neither has delivered the kind of bounce I’d hoped for.
The biggest reason I’m cautious is that the so-called commodities supercycle still hasn’t turned up, despite soaring copper prices. China’s incredible growth story powered this sector for two decades, but that’s looking well past its peak now. Even if Beijing launches another stimulus, much of the infrastructure is already built. Possibly too much of it.
Valuation looks compelling
Even so, Rio Tinto is hard to ignore given today’s price-to-earnings ratio of just 9.27. That’s low for a business with so much scale and global reach. The trailing dividend yield stands at a chunky 6.7%. However, that’s forecast to dip to 5.72% in 2025 and 5.51% in 2026, reflecting slowing cash flows and profits.
Over 20 analysts have weighed in on the stock, producing a median 12-month target price of 116.75p. That’s 31% above where the shares trade today. Eight say it’s a Strong Buy, one says Buy, and seven say Hold. Nobody’s selling.
One for long-term dividend hunters?
The share price is down 6.8% over the last year, and flat over five. That doesn’t inspire confidence, and Trump’s tariff rhetoric may keep the pressure on. Rio previously warned that tariffs have added $300m to the cost of Canadian aluminium exports.
Long-term income investors seeking some diversification into the beaten down commodity sector might consider buying this one for the yield alone. The shares should grow from today’s low base, but it could take time.
