Rio Tinto is expected to keep its promise to increase returns to shareholders this week.
Whether it should be doing so at a time of falling commodity prices and when investors will actually get that money is less clear.
Rio will post a fall in its annual earnings on Thursday – the question is by how much.
However chief executive Sam Walsh has committed on several occasions to “materially” increasing cash returns, since reporting a bumper $US5.1 billion first half underlying profit last August.
The market is predicting a 10 per cent lift in the final dividend to about $US1.16 a share, which is comparable to rises in recent years.
Analysts believe the promised cash return will be a share buyback over several years, increasing the value of investors’ holdings.
The predictions vary.
Deutsche Bank’s Paul Young thinks it will be a $US1-2 billion buyback this year but is unsure after that, RBC Capital Markets says it should be $US1-$US1.5 billion a year for several years while UBS’s Glyn Lawcock has tipped $US2-$US3 billion in year one.
Ratings agency Standard & Poor’s warned against granting too generous a return this week due to a possible adverse impact that could have on its debt pile and credit rating.
Iron ore has represented as much as 90 per cent of Rio’s profits in recent years but the price has halved in the last year to near six-year lows.
Fat Prophets resource analyst David Lennox questioned the wisdom of giving extra cash back to shareholders in the current weak price environment.
“They may make an announcement but they probably won’t action it for some time,” he told AAP.
The returns are a strategic move against rival Glencore’s unwelcome $US190 billion merger bid made last year.
The consensus forecast of analysts is for a 13 per cent fall in underlying net profit to $US8.9 billion, with cost cutting and extra volumes offsetting prices.
An expected headline net profit of $US7-$US7.5 billion – which includes one-off impairments – would be higher than last year’s $US3.7 billion when large copper and aluminium asset write-downs were applied.