View the article online at http://citywire.co.uk/money/article/a881747
FTSE sell-off reignites as banks and miners tumble
FTSE dives back into the red, weighed down by miners as Rio Tinto scraps progressive dividend policy.
Update: The FTSE 100 has fallen back firmly into the red after yesterday's minor rebound, as investors were shaken by US Federal Reserve chair Janet Yellen's claim that ongoing global turbulence could hit the US economy.
The UK blue-chip index fell 94 points, or 1.7%, to 5,577, up from a low of 5,508 set in the morning's trading, as a less brutal sell-off in the US, with the S&P 500 down 1% and the Dow Jones falling 1.5%, took the edge of global bearishness.
Miners fell towards the bottom of the FTSE 100, as Rio Tinto (RIO) reported a £596 million annual loss, keeping its full-year dividend flat at $2.15, but warning it would cut future payments by about a half. In a statement to the market it said that due to current conditions, it was 'no longer appropriate to maintain the progressive dividend policy'.
'Rio Tinto shares suffering from confirmation of commodity sector woes this morning as shareholders react unfavourably, maybe even a little unfairly, to a far-from-unexpected change to dividend policy after a 51% decline in full-year earnings,' said Mike van Dulken, head of research at Accendo Markets.
Steve Clayton, head of equities research at Hargreaves Lansdown, said even after the dividend cut Rio would yield around 4.7%. However, with analyst consensus forecasts suggesting profits in 2016 will fall another 40% shareholder pay-outs would remain under question, he said, with a 110 cent dividend covered just 1.25 times by earnings.
'So after all the huffing and puffing, the protestations and the arguments, Rio have put themselves back into the position of offering an attractive yield, the sustainability of which is uncertain, making the stocks little more than a play on the iron ore price, which may, or may not recover, somewhere down the line,' Clayton commented.
Shares in Rio recovered some ground after falling to as low as £16.07 at the open, trading 3.5% down on the day at £17.05.
Mining investment trusts also lost ground with BlackRock World Mining (BRWM ) down 3% at 168.1p, still below its lows at the time of the 2008 financial crisis but above last month's trough. The trust holds over 10% of its assets in Rio and with a yield of over 12% faces doubts over its dividend.
Banks meanwhile gave up yesterday's gains, as any optimism over reports the European Central Bank could prop up the sector by buying bank stocks ebbed away. Barclays (BARC) fell 5% to 151p, Royal Bank of Scotland (RBS) dropped 3% to 226.1p, Standard Chartered (STAN) was down 3.4% at 393.6p and Lloyds (LLOY) fell 2.7% to 56.8p.
Among the few FTSE 100 stocks to make gains were precious metals miners Randgold Resources (RRS), up 6% at £60.45, and Fresnillo (FRES), 5.4% higher at 874.5p, as investors fled to the perceived safe havens of gold and silver.
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In this guide to investment trusts, produced in association with Aberdeen Asset Management, we spoke to many of the leading experts in the field to find out more.
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Look up the shares
- Rio Tinto PLC (RIO.L)
- BHP Billiton PLC (BLT.L)
- Anglo American PLC (AAL.L)
- Antofagasta PLC (ANTO.L)
- Glencore PLC (GLEN.L)
- BP PLC (BP.L)
- Royal Dutch Shell PLC (RDSb.L)
- Barclays PLC (BARC.L)
- Royal Bank of Scotland Group PLC (RBS.L)
- Lloyds Banking Group PLC (LLOY.L)
- Standard Chartered PLC (STAN.L)
- Randgold Resources Ltd (RRS.L)
- Fresnillo PLC (FRES.L)
Look up the investment trusts
- BlackRock World Mining Trust (Ordinary Share)
- BlackRock Commodities Income (Ordinary Share)
- City Natural Resources (Ordinary Share)
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by Gavin Lumsden on Jan 20, 2017 at 17:01