Rio Tinto has announced a significant increase in its dividend and a new share buyback program as companies increasingly look for ways to return excess capital to shareholders.
Along with its 2010 results, the mining company announced a total dividend for the year of $1.08, an increase of 20 percent on its previous commitment, and a plan to buy back $5 bn worth of shares by the end of 2012.
The dividend increase and share buyback program are possible thanks to record profits at Rio Tinto, which were achieved through strong growth in emerging markets and rising commodity prices.
‘Our strong balance sheet, high-quality assets and positive long-term outlook enable us to undertake our largest ever growth program at the same time as returning capital to shareholders,’ comments Tom Albanese, Rio Tinto’s chief executive, in a statement.
Rio Tinto’s move to return capital to shareholders is the latest in a wave of similar actions by companies as they look for ways to move excess cash off the balance sheet, particularly in the cash-rich mining and pharmaceutical sectors.
Last week, GlaxoSmithKline said it expected to repurchase £1 bn-£2 bn ($1.6 bn-$3.2 bn) worth of shares in 2011. The week before that, AstraZeneca said it planned to buy back $4 bn in shares this year, building on $2.1 bn of share repurchases in 2010.
This quarter’s ‘Inside the buy side’ research from Corbin Perception Group (CPG) highlights capital allocation as a key issue for investors.
‘With strong corporate balance sheets, companies flush with dry powder and an attractive interest rate environment, capital allocation strategies have emerged as a leading area of investor focus,’ says CPG.
‘Investors will be paying close attention to companies’ ability to optimize shareholder returns through effective capital allocation during 2011.’
