RIO has delivered a solid CY16 earnings result of US$5.1b. A highlight of the result was the increased shareholder returns, with RIO announcing a final dividend of US$1.25ps
Revenue of US$35b, EBIT of US$7.8b and DPS of US$1.70 placing the stock on 3.3% yield.
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Looking out over 2017, we expect a relatively flat market for iron-ore prices which will translate into only moderate EPS gains for RIO (5-10%). We assume revenue of US$38b and EBIT at US$9.5b, EPS $3.20, DPS US$2.50, which will place the stock on a forward yield of 4%.
Share buy backs and capital returns will help underpin the story here with RIO.
We see both RIO and BHP fully valued at current prices. With short term volatility likely ahead for Iron-ore prices, we recommend taking profits or selling covered calls to enhance the yield.
