Reality Check

Rio Tinto has scrapped its progressive dividend policy, as the world's second-largest iron ore miner adapts to an uncertain global macroeconomic environment and gloomy commodity markets. 

The dividend policy has been changed to one based on a payout ratio, specifically, for "total cash returns to shareholders over the longer term to be in the range of 40-60% of underlying earnings in aggregate through the cycle." The previous policy was based on the annual dividend payout not falling in US-dollar terms (Rio Tinto's reporting currency). 

Rio Tinto plans to pay a minimum US$1.10 a share, or around US$2 billion, in dividends in the 2016 calendar year, versus a total dividend payout in calendar 2015 of US$2.15 per share. 

Ord Minnett sees the new dividend policy as the right one for a company in such a cyclical business and notes that management can undertake share buybacks or declare special dividends, where appropriate, to boost the payout to shareholders. 

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