What's going on?

Rio Tinto, one of the world�s largest metals and mining companies, struck gold for its investors as it announced its largest-ever cash payout to its shareholders (a.k.a. dividend). And as though that wasn�t pleasant enough, it also promised to buy back $1 billion of stock in 2018.

What does this mean?

Thanks to accelerating global economic growth and some natural disasters that disrupted supply, the prices of key commodities such as iron ore and aluminum increased as much as 20% in 2017.


Investors expected the miners to benefit from this trend, but Rio outshot expectations, allowing it to declare a record dividend and commit to buying back its own stock. A company buying back its own stock is generally good for investors because it 1) shows management�s confidence in the future prospects for the business and 2) creates further demand for the stock, pushing up its value.

Why should I care?

For the stock: Needless to say, Rio�s shareholders had a good day.

Stronger-than-expected results culminating in a record payout to investors were well received by the market, which sent the stock up around 1%. Jean-S�bastien Jacques, who became CEO in July 2016, spoke positively on the revenue growth outlook (mining revenue growth is usually closely tied to economic growth) � noting China�s economy looking good over the mid- to long term and robust growth across most major markets.


For markets: Mining stocks could come into favor as inflation protection.

Rio Tinto may be heralding a period of strength in mining stocks across the board. Commodities, and by extension commodity-related stocks, typically benefit more from the later stages of economic growth cycles than other sectors such as retail. Why? When inflation rises in retail, shops raise prices and people buy less � a negative for those companies. But although commodity prices also tend to increase as inflation goes up, people still need to buy metals and energy, which benefits these companies and their investors.