Rio Tinto (LSE:RIO) shares have soared 66% in the past six months. Do full-year results released Thursday morning (19 February) show us why? There’s one immediate standout for me.
CEO Simon Trott said: “Our strong cash flow and balance sheet enable us to sustain a 60% payout ratio with a $6.5bn ordinary dividend, making it the 10th consecutive year at the top end of the range.”
Rio Tinto sounds like a bit of a cash cow. The company started life in 1873 with the purchase of a mine on the river of the same name in Spain — a site that’s produced copper, silver and gold since antiquity. And since then, it’s been rewarding investors well — though with up-and-down spells in a very cyclical market.
Despite the CEO’s glowing words, Rio Tinto shares fell more than 3% in early trading. Let’s see why.
Bottom-line profit flat
Underlying EBITDA in 2025 rose 9% on the previous year. But free cash flow fell 28%, and profit after tax dipped 14%.
Underlying earnings per share didn’t budge. And while the total dividend payout might have been at the top end of hopes, per share it was unchanged.
It wasn’t a great year for iron ore, with the price dipping between December 2024 and a year later. And costs per tonne at Rio’s Pilbara operation rose. Against that, however, copper prices had a strong year, boosted by high demand from AI-led data centre expansion.
Overall, this is what we should expect if we buy shares in a miner or other commodities producer. Our profits will rise and fall along with world prices for the stuff they produce. I don’t see any underlying problem with the company here — it’s just been doing what it should do, for one more in a long line of years.
What next?
I see some factors very much in Rio’s favour. But some things count against it too. I like the global focus — if the US wants to slap tariffs on metal imports, China is only to happy to keep on buying. Still, even with a global outlook, there’s a fair bit of dependency on the world’s two largest economies — and both can be politically uncertain.
Also, short-term metals and minerals prices can fluctuate fairly wildly. And that means some years of falling prices, and therefore profits, are almost certain.
Forecasters do have earnings and dividend growth on the cards over the next few years. The thing is, that could be upended in the short term if commodities markets turn down. And having a company’s income so dependent on factors outside of its control is always a risk.
A cash cow, or not?
I think investors looking at recent share price rises and hoping for gains though 2026 should possibly consider other opportunities. There’s too much scope for short-term volatility for my money.
But for those who see a long-term cash stream — following a 4% dividend yield for 2025, covered 1.7 times by underlying earnings? I very much rate Rio Tinto shares as an investment to consider for the decades ahead.
