CAPITAL MARKETS

UK-listed miners boost June quarter dividends

Glencore, Rio Tinto and Anglo American boost sector payout

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According to Link Asset Services' Dividend Monitor report for the June quarter, the 95% year-on-year increase in dividends from the mining sector accounted for most of the increase in UK plc dividends year-on-year.

The sector had been the fifth-best performer the previous quarter when it paid out £1.2 billion, up 66% year-on-year.

Link noted the mining sector had "continued to roar back to strength, more powerfully than we had imagined", with the jump at 82% on an underlying basis.

It attributed the strong increase to mining giants Glencore, Rio Tinto and Anglo American, as well as Mondi, which paid out a special €1 per share dividend.

Glencore's dividend policy for 2018 approved by shareholders in May is a total distribution of US20c/share payable in two equal parts.

Rio's final dividend, paid in April, was a record £1.29/share, while Anglo increased its interim dividend to shareholders by 2% year-on-year to 49c/share, meeting its policy of 40% of underlying earnings after a strong first-half 2018 period.

"Together these four alone paid out over £1.9 billion more than in Q2 (June quarter) last year, and accounted for the lion's share of the overall dividend growth from UK plc," according to the report.

It added that there were also big increases from almost all the companies in the mining sector, which highlighted its cyclical nature.

"As more mining companies move away from a progressive dividend policy that can be impossible to sustain when commodity prices slump, and towards policies that link dividends more explicitly to profits, we can expect their dividends to be much less predictable than in the past," Link said.

It noted the sector was "unusually large" on the London Stock Exchange compared to most other large markets, which made its share of UK dividends much bigger than elsewhere.

According to Link, data from the Henderson International Income Investment Trust showed mining comprising £1 in every £40 of dividends paid outside the UK, compared to a £1 in every £12 in the UK.

Link Market Services CEO Justin Cooper said in a release accompanying the report miners stood out and were "boosted by the recovery in commodity prices after several years of pain for companies in the sector".

"Many mining companies have adopted dividend policies that link pay outs more explicitly to volatile profits, so we can expect their dividends to be much less predictable than in the past," he said.

In the report's outlook, it wasn't as positive for the mining sector going forwards, noting that mining dividends might not sustain their run higher.

"Commodity prices took a hit in June as trade tensions rose, and will affect future mining dividends if it proves to be more than a blip. Indeed, analysts expect earnings in the sector to dip slightly next year", Link noted.

"In the short-term, however, there is more to come from the miners, though base effects mean the jump will be much smaller in the second half of 2018 than in the first".

It noted that Glencore especially was set for another big increase, although its next dividend might be hit by the US Department of Justice probe.

 

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