Rio Tinto Ltd (ASX: RIO) and 2 other ASX iron ore mining shares have continued their climb to record highs. Here’s why.
The post Why Rio Tinto (ASX:RIO) and 2 other ASX iron ore mining shares sit at record highs appeared first on Motley Fool Australia. –
Despite surging COVID-19 cases in Europe and the US, rising trade tensions with China and a strong Australian dollar, ASX iron ore mining shares are still on the rise. The Rio Tinto Limited (ASX: RIO), Fortescue Metals Group Limited (ASX: FMG) and BHP Group Ltd (ASX: BHP) share prices have all managed to stay near record-all time highs.
Iron ore prices at record highs
Iron ore prices have held onto 8-year highs, above the US$120 per tonne level. This has been driven by China’s significant infrastructure spending, from renewable energy projects to railways and airports. The significant spending in infrastructure is holding up commodity prices across the board. The Baltic Dry Index, a benchmark for the cost of shipping commodities including iron ore and coal, is at its highest level since September 2019.
Vale to avoid weakening iron ore markets
Brazil exported a total of 31.2 million tonnes of iron ore in October, down 8.6 percent on the year. Brazilian mining giant, Vale weighed on global supply in the first half of this year following wet weather conditions and COVID-19 related lockdowns.
More recently, Vale said that it would place caution with ramping up production to avoid driving down the iron ore market. The miner is prepared to increase its production capacity using safer and less polluting methods to 450 million tonnes in the next years. This is almost 50% more than its forecast production for 2020. However, it may ease production if the expected surge in infrastructure and manufacturing in Asia fails to materialise.
Higher commodity prices means higher dividends
Higher commodity prices throughout 2020 has allowed ASX iron ore miners to pay market leading dividends.
In BHP’s full year results, the board announced a final dividend of 55 US cents per share, which includes an additional amount of 17 US cents per share, above its 50% payout policy. This brings its total announced dividends to US$1.20 per share. At today’s prices, this would represent a dividend yield of 4.80%. Similarly, the strong operating performance at a time of high prices has allowed Rio Tinto to pay a dividend yield of 5.90%.
Fortescue, as a pure iron ore play, has benefited the most from higher iron ore prices. Its net profit after tax in FY20 increased 49% on FY19 to US$4.7 billion. And its shareholders were pleasantly rewarded with an eye watering dividend yield of 10.30%.
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Motley Fool contributor Lina Lim has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.