Investors have shrugged off a full-year loss from FTSE 100 miner Anglo American (AAL) as the impact of asset write-downs, operational problems and lower commodity prices was fully expected by the market. Like its peer group, investors are now judging Anglo on its ability to streamline its business and make the remaining operations more efficient. The market appears to like the company's restructuring plans so far, sending the shares up 3.2% to £20.76, the highest level since September 2012.
Anglo has reported a $239 million pre-tax loss for 2012 compared with a $10.8 billion pre-tax profit a year earlier. This is on sales of $32.8 billion (versus $36.5 billion in 2011).
The £28.9 billion cap has reiterated the key theme presiding over the mining sector, being a renewed focus on delivering shareholder value. That means big capital investments will be heavily scrutinised and shareholders are likely to get greater dividend income over the coming years.
Indeed, Anglo has raised its final dividend by 15% to 53c, giving a total of 85c (55p) for the year. Many analysts had expected a slightly lower dividend around the 76c (49.2p) level. Today's announcement puts Anglo on a 2.6% yield which is much higher than miners have historically paid, although still lower than dividends offered by the big oil companies. BP (BP.) trades on a prospective 5.5% yield and Royal Dutch Shell (RDSB) on a 5.2% prospective yield.
Rio Tinto (RIO) yesterday announced a similar 15% hike to its dividend, reporting a 167c full-year payout. Next week (20 Feb) we will find out how generous BHP Billiton (BLT) has been when it reports full-year results.
The cash flow benefits from declining capital expenditure and exploration spend support the case for strong dividend growth from the miners in the years ahead – rather than the latest payouts in the full-year results being one-off gains.
Yet the risks remain high across the sector. Investment bank Jefferies notes that Rio's production guidance yesterday in most of its key business was below expectations. The bank therefore says Rio needs to hit its cost-cutting targets to meet consensus earnings forecasts.
If you buy a stock for income you need to ensure that the shares at worst are steady, at best rise in value. If they decline by a greater amount than the dividend yield, that is a wasted investment. And one of the biggest triggers for a miner's share price to decline is missing production and earnings forecasts of which the sector has been guilty on many occasions.