Rio Tinto boosts dividend on commodities recovery

A train loader fills train carriages with lump iron ore at Rio Tinto Group's West Angelas iron ore mine in Pilbara. The miner's plans to replace trains with driverless ones hit a delay in Q1.
Ian Waldie | Bloomberg | Getty Images

Global miner said on Wednesday it will pay a bigger-than-expected annual dividend of $1.70 per share on the back of a strong recovery in mineral commodities markets in 2016 and cost-cutting.

Underlying earnings for the world's second-biggest mining house rose by 12 percent to $5.1 billion, beating analysts' estimates for around $4.87 billion, according to an externally compiled consensus.

The result marks a turnaround from 2015, when the world's No. 2 miner posted its worst underlying earnings in 11 years and scrapped its generous payout policy amid tumbling commodity prices.

"We enter 2017 in good shape. Our team will deliver $5 billion of extra free cash flow over the next five years from our productivity program," Chief Executive Jean-Sebastien Jacques said in a statement.

The market had been expecting a dividend of about $1.33 a share, according to the external consensus. The annual payout is still below 2015's dividend which partly included the previous payout policy of never cutting payments year to year.

Analysts are mixed on whether Rio Tinto will increase returns to shareholder in 2017 or hold on to more cash amid forecasts for a retraction in commodities prices.

The price of iron ore surged 81 percent last year and now sells for around $80 a tonne, despite analysts' expectations for a retreat to around $55.

The concern is that millions of tonnes of additional low-cost supply from Australia and Brazil will overwhelm demand in 2017 and send prices into retreat.