Why has the RIO share price slumped today?

Posted: 10 March 2022 12:32 pm
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Shares in mining giant Rio Tinto have climbed nearly 14% in the last 6 months but slumped during today's trading.

Shares in mining giant Rio Tinto (ASX: RIO) are topping the list of the worst performers on the ASX on Thursday.

The company's share price slid nearly 8%, sitting at $110.60 at the time of writing. By comparison, rivals BHP (ASX: BHP) and Fortescue Metals Group (ASX: FMG) were down 1.8% and 1.9% respectively in a firm Australian market.

What is weighing down the RIO stock price today?

A large part of today's decline in Rio Tinto's shares is likely on account of the stock going ex-dividend on Thursday.

In simple terms, that means today is the record date for paying the final dividend that the company declared at its annual results last month.

Typically, the share price drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.

Rio more than doubled its full year net profit in 2021 to a record US$21.09 billion (AUD$29 billion) thanks to a golden first half when iron ore prices remained well over US$200 a tonne, before tumbling in the second half of the year.

That enabled Rio to declare a shareholder windfall totalling US$10.40 a share for the full year, including a final dividend of US$4.17 (AUD$5.77) a share, and another 62 US cents (86 Australian cents) a share special dividend.

Eligible shareholders will receive this total AUD$6.63 dividend payment on 21 April on a fully-franked basis. Most of today's decline reflects this dividend.

Cloudy outlook

Iron ore prices have climbed sharply in recent weeks, in line with the trend for other commodities, due to the supply concerns amid the escalating Ukraine Russia conflict and Western sanctions on Russia.

Overnight, spot prices of the key steel-making ingredient declined 2.9% to US$157.55 a tonne but are still more than two-thirds higher from the bottom hit last November. Still, brokers are wary that the increase hasn't been backed by any improvement in demand fundamentals, particularly in the key market China.

Investors are also concerned about the fallout of rising cost pressures on the Australian miners as they struggle against labour shortages in Western Australia.

All 3 big miners – BHP, Rio Tinto and Fortescue Metals – last month indicated higher material and labour costs as well as the impact of adverse weather conditions.

In recent weeks, analysts at Citi have downgraded their outlook on Rio shares from "buy" to "neutral", while those at Macquarie have trimmed their price target by 1% to $129.00. Morgan's less bullish $120 target indicated limited upside for the stock.

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