Rio Tinto PLC (LSE:RIO) (LSE: RIO) and BHP Group PLC (LSE:BHP) (LSE: BHP) are set to pay out more than US$100bn in combined dividends over the next three years, according to estimates from US bank JP Morgan.
Rio has already announced interim dividend payments of US$9.1bn, which JPM notes was more than the whole of 2020.
Between 2021-23, the broker expects Rio’s payouts to rise to a cumulative US$52bn, which equates to a third of its market value currently and is comparable to total returns over the entire last decade.
BHP is on a similar path, suggests the broker, with a US$55bn cumulative payout forecast for the next three years.
The Anglo-Aussie miner reports full-year results on 17 August, which JPM believes will highlight both the amount of cash being churned out currently and how much of that is being converted into dividend payments.
JPM also argues that the huge size of dividends being paid out by the miners means that they have to be included in any valuation and share price target.
BHP’s base case value is around 20% above the current market value, but add in the potential dividends and that total shareholder return (TSR) rises to 40-45%.
“Relatively low operating leverage, strong balance sheet and minimal growth capex imply dividends are defendable even at materially lower prices,” it adds.
“For example, assuming iron ore of $70/t from today, we estimate BHP still generates TSR of ~20% to YE’22.”
“Furthermore, ESG considerations will likely mean corporate strategy will err on the side of caution around growth & M&A (here) further limiting potential drains on excess capital.”
JPM has upgraded its stance on the whole sector to ‘Overweight’ with BHP, Rio and also Glencore its favoured stocks.
Rio shares rose 2.1% to 6,231p and BHP 1.3% to 2,355p.