Monsters of Rock: Is the time for conservative dividends upon us?

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  • Goldman Sachs thinks BHP could slash dividends on weak economy and M&A ambitions
  • Lithium runs hard
  • But Materials and Energy stocks yield earlier gains 

Rio Tinto’s (ASX:RIO) move to curb its half year dividend last month has doused expectations for mega payouts from the top-tier miners, with August earnings season now under way.

The Pilbara iron ore giant’s $6.2 billion payout remains the second largest half year return to shareholders in the miner’s ~150 year history.

But it disappointed to the downside, with Rio ditching a special dividend and keeping the return to a moderate 50% of profit in the face of a deteriorating macro environment.

That has analysts more bearish on peers like BHP (ASX:BHP), which Goldman Sachs number crunchers Paul Young and Hugo Nicolaci now say is unlikely to surprise to the upside “due to the uncertain commodity price outlook and Chile’s proposed copper royalty.”

“We note that Rio Tinto announced a conservative 1H dividend payout of 50% on 27 July. We expect BHP to payout 65% for the final dividend (vs. cons of c. 75% and down from 70% for the interim).

“Other areas of focus will be capex guidance (GSe US$7bn/US$7.8bn FY23/FY24), and buy vs build in copper.”

BHP remains a buy for Goldman Sachs, with South32 (ASX:S32), Mineral Resources (ASX:MIN), Bluescope Steel (ASX:BSL) and Iluka Resources (ASX:ILU) also in favour ahead of their earnings reports.

GS is below consensus on most dividend payments, expecting BHP to pay $2.90 a share (-11%), Alumina (ASX:AWC) to pay 3.6c (-18%), Whitehaven (ASX:WHC) to pay 47c (-26%), MinRes (ASX:MIN) expected to pay 67c (-37%), OZ Minerals to offer 7c (-15%) and Iluka to pay 23c (-20%).

But it is above consensus on Fortescue (ASX:FMG) ($1.41, +2%) and South32 (29c, +18%). However, GS sees FMG’s dividend payouts falling from a recent 80% of NPAT to 70% next financial year and 50% of 2024 as it looks to fund ambitious green energy projects in its Fortescue Future Industries subsidiary.

Goldman is positive on mining in general, but recently took some air out of price targets for the big boys on the back of lower iron ore and met coal price forecasts.

Monstars share price today:

 

Much of a muchness, as ASX Materials and Energy stocks ease off in arvo trade

It’s hammering down with rain over in WA and the West Perth-centred mining sector caught some of that mood as the trading day wore on.

After a solid morning session powered by battery metals and copper stocks, the materials and energy sectors pared back their gains to a mild 0.12% and 0.13%, respectively.

Coronado (ASX:CRN) rose 5.61% after announcing a more than 600% lift in NPAT to US$562m and 3000% rise in EBITDA.

Lithium stocks were still solid, with Lake Resources (ASX:LKE), Sayona (ASX:SYA), Liontown (ASX:LTR) and nickel play Nickel Industries (ASX:NIC) among the success stories.

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