Iron Ore Defeating The Doomsday Scenario Part 2 - Rising Free Cash Flows And The Return Of The Dividends

In the first part of this series, I tried to demonstrate that iron ore miners were a typical example for a successful contrarian investment. More importantly, despite last year's gains, I am still bullish on the sector, at least mid-term. I believe that earnings and cash flows will continue to rise and that these developments are not fully priced in yet. There is still plenty of room for positive surprises which should lift stocks higher, for example growing dividends.
A Look at the Dividend History
The major iron ore miners Vale (NYSE: VALE), Rio Tinto (NYSE: RIO), BHP Billiton (NYSE: BHP)(NYSE: BBL), and Fortescue Metals Group (OTCQX:FSUMF) paid attractive dividends, at least until 2014 (BHP and Rio Tinto even throughout 2015).
All four companies distribute bi-annual dividends. For Rio Tinto which FY ends on December 31, the first dividend payment in the calendar year is the final dividend which is announced with the full-year results. BHP's and Fortescue's financial year ends on June 30, hence the first payment in the year is the interim dividend which is declared after the half-year results are published. BHP Billiton's ADRs BBL and BHP each represent two ordinary shares, hence they receive twice the dividend.
As I mentioned in the first part of the series, all major iron ore miners cut their dividends in 2016, because they were not covered by free cash flow anymore. During times of limited visibility when deleveraging became a priority, no-one was... Read more