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The share price of Rio Tinto Ltd (ASX:RIO) is experiencing a decline on Thursday morning, with shares down 3% to AU$109.11 at the time of writing. However, this dip in share price is not due to concerns over commodity prices or disappointing company news. Instead, it’s a sign that payday is approaching for shareholders.
Understanding the Ex-Dividend Impact
Today's weakness in Rio Tinto's share price is largely attributed to the stock trading ex-dividend. This means that the rights to the upcoming dividend payment are now secured. Investors purchasing shares today will not be eligible to receive the interim dividend; instead, the dividend will go to those who held the shares prior to the ex-dividend date, even if they have since sold them.
Typically, when a stock trades ex-dividend, its share price drops by an amount approximately equal to the dividend being paid out. This is because the dividend is considered part of the company's valuation, and new buyers do not want to pay for a dividend they will not receive.
Rio Tinto’s Interim Dividend Details
At the end of last month, Rio Tinto announced its half-year results, which included a 3% increase in underlying EBITDA to US$12.093 billion. The company’s performance was bolstered by strong results in its aluminium and copper segments, which offset weaker results in its iron ore division. Specifically, copper EBITDA surged by 67% to US$1.8 billion, and aluminium EBITDA rose by 38% to US$1.6 billion. Conversely, iron ore EBITDA fell by 10% to US$8.8 billion.
In light of these results, Rio Tinto's board decided to maintain its fully franked interim dividend at US$1.77 per share, representing a 50% payout ratio and a total payout of US$2.9 billion. At current exchange rates, this translates to an Australian dollar dividend of A$2.68 per share, equating to a 2.4% yield based on yesterday's closing share price.
Analyst Perspective: Is Now a Good Time to Invest?
Despite the drop in share price, analysts at Goldman Sachs remain bullish on Rio Tinto’s stock. The investment bank has a "buy" rating on the miner's shares, with a price target of AU$136.60. This suggests a potential upside of approximately 25% over the next 12 months for investors.
Goldman Sachs also anticipates a final dividend of US$2.47 per share, which would bring the total dividends for the year to US$4.24 (A$6.43) per share, reflecting a full-year dividend yield of around 5.9%.
