Glencore’s dividend policy
Previously in this series, we discussed how Glencore (GLEN-L) sees itself placed to cater to metal demand from electric vehicles. In this part, we’ll see what Glencore had to say about its dividend policy during the investor update call. In 2015, Glencore curtailed its annual dividend program as commodity prices fell to multiyear lows. Freeport-McMoRan (FCX) suspended its dividend, while BHP Billiton (BHP) and Rio Tinto (RIO) tweaked their dividend policies to preserve cash.
Ivan Glasenberg, Glencore’s CEO, noted during the investor update call that the company’s dividend would be “comprised of $1 billion base distribution from the Marketing plus a minimum payout of 25% of the Industrial free cash flow.” Note that 25% is only the minimum that Glencore intends to pay. The payout ratio could be higher if the company doesn’t have sufficient reinvestment avenues.
Glencore also listed its capital structure priorities during the event. The company wants to maintain its net debt between $10 billion and $16 billion. It also wants to maintain its net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio below 2 through the business cycle. Glencore intends to maintain its investment-grade credit rating.
Other mining companies (TECK) have also taken a conservative approach towards their balance sheet. Mining companies have high operating leverage due to their exposure to underlying commodity prices—something that they can’t control much. However, they can still manage their financial leverage to reduce their overall leverage.
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