Vale’s new dividend policy
On March 29, 2018, Vale (VALE) announced a new dividend policy set to take effect in its 1H18 results. The new policy includes the following:
- shareholder remuneration comprising two semi-annual installments, with the first payable in September and the second in March
- dividends will comprise a minimum of 30% of adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) minus sustaining capital expenditure, with the September installment based on 1H18 results and the March installment based on 2H18 results
- the board of directors may approve additional remuneration through the distribution of extraordinary dividends
This policy is more aggressive and sustainable and can be applied in any price scenario as it is linked to cash flow generation. In the company’s 4Q17 earnings call, CEO Fabio Schvartsman guided for a more “aggressive and sustainable” dividend policy.
Moody’s Investor Service stated that Vale’s new dividend policy is credit positive. It added that a formal dividend policy brings more transparency and predictability to dividends. Moody’s expects Vale to generate free cash flow of $3 billion–$4.5 billion from 2018 through 2020. This assumption is based on Moody’s medium-term price sensitivities and dividend estimates based on the new policy.
In the face of falling commodity prices, miners such as Freeport-McMoRan (FCX), Glencore (GLNCY), and Anglo American (AAUKY) suspended their dividends (DVY). However, they’ve reinstated and increased their dividends recently. BHP Billiton (BHP), for example, boosted its dividends in its latest results.