This week sector giant Rio Tinto reported 2018 full year results. Investors in the Miners liked the sound of profits of $8.8 billion, up 2%, which also beat consensus expectations by 2%. Management focus is now on Iron-ore value rather than volume given supply disruptions. Steel remains resilient. And it has found a new gold deposit.

The shares, however, only closed +0.9% on the day. A muted response you’ll agree. This in spite of the Miner announcing a very generous $4bn special dividend (184p per share). This was a record and ahead of market expectations. Add to it a final ordinary dividend of 136p/share for 2018 and shareholders are gearing up for a 320p/7.2% payout next week*.

Rio is also still buying back shares to return excess funds to loyal shareholders. This is normally supportive of the shares. So how come the shares delivered such a muted response on the day?

Firstly, the shares had already rallied in excess of 28% from December lows. And we are still facing uncertainty about a slowing Chinese economy as well as a protracted trade skirmish between Washington and Beijing.

Secondly, shareholders were a little frustrated. Management has cash to play with, in stark contrast to indebted peers. Yet it refuses to set targets for future cash/debt levels, preferring to keep its balance sheet flexible. Just in case the deal of the century comes along, which means the risk of a bad and/or expensive M&A deal.

That said, Rio’s shares are holding up well. They have bounced off 4300p intersecting support. Recent 4% weakness may also have just been necessary consolidation before another push north. Could we see 2018 highs of 4540p challenged  again(+3.7%)? Perhaps even a run at 2011 highs of 4888p (+11.1%)?

Don’t forget, the Miners sector is still recovering from 2016 lows. Rio shares are up 180% from Jan 2016 lows of 1560p. Last time the sector sold off hard, in the midst of the 2008-2009 financial crisis, the shares fell 86% from their 5900p peak to hit a trough of 830p. They subsequently rebounded by 469% from Dec 2008 lows to their Feb 2011 highs of 4700p.

After falling 67% from their 2011 highs to their Jan 2016 lows, and having rebounded 180% to date, could this mean they could have further to go? My colleague has just handed me an interesting excel table. It suggests that, historically, on average, the Rio Tinto share price recovers the adjustment for its dividend payments in 5.3 days (1 week).

That said, historically goes all the way back to 1992. The averages for 10 years (11.6 days), 5 years (13.8 days), 3 years (7.5 days) and 2 years (10.8 days) are perhaps more representative of what could happen this time round. This is, however, just an average. There are plenty of times it doesn’t recover. There are no guarantees.

And next week’s bumper special dividend is slightly different. A 7.2% yield is more than double what it was the last it paid a special dividend (13 years ago). This time, however, the special/ordinary split is at least more equal, the special accounting for 57% of the payment vs. 73% last time.

It might be a stretch to expect Rio Tinto shares to rally back to 2008 record highs of 5900p. However, the chance to bank a cash dividend of 7.2% next Thursday, and potentially benefit from a share price recovery of the same amount in a matter of days, could offer a 7.2% trade opportunity.

It might take a bit longer than 5 days, but most traders, especially those who like Miners which normally yield 2-5%, would likely be very happy with a potential 7% return should the two week average recovery time hold up.

Alerts about companies reporting results and paying dividends in the days and weeks ahead is a key part of Accendo’s trading and research service. This is in tandem with offering clients hand-picked trading opportunities twice daily.

Think shares trading in ranges (horizontal, rising, falling), candidates ripe for a rebound (or sell-off), names in the midst of a breakout (or breakdown), shares showing momentum (positive or negative).

If you trade any of the above get access to our research Gold Pass now!

Mike van Dulken, Head of Research, 1 March 2019

*Those using Rio Tinto CFDs get paid the dividend on the Ex-dividend date; physical shareholders must wait another 31 days.