Rio Tinto and BHP Billiton to keep dividends despite pressure, says Macquarie – by Stephen Cauchi (Australian Financial Review – September 28, 2015)

BHP and Rio Tinto would have to trim their dividends in coming years due to crashing commodity prices, according to research released on Monday by Macquarie, with Rio tipped to be the better performer of the two.

Both companies remain committed to progressive dividend policies, in which dividends rise in line with earnings per share. The dividends would continue, said Macquarie. But the bank nevertheless trimmed its forecasts for both companies.

For BHP, “we now only factor a flat payment of $US1.24 a share for the next three years, a payment of $US6.5 billion”.

For Rio, “we have reduced our dividend growth assumptions … with our dividend compound annual growth rate reducing from 4 per cent to 2 per cent over the next three years.”

BHP’s dividend per share in 2015, averaged over 12 months, was $1.68. Rio’s interim 2015 dividend per share was $1.44.

But while the dividends should keep coming, said Macquarie, “on our forecasts neither BHP nor Rio generates sufficient free cash flow to cover the dividend payment.

“As such, both companies are expected to utilise their respective balance sheets to partially fund the dividend.”

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