Their order of preference among the majors is now led by Rio, with a buy recommendation, followed by the merged Glencore-Xstrata and BHP Billiton, both also buys, and finally Anglo American, with a hold recommendation.
“Dividend coverage looks extremely robust [at Rio Tinto] under stressed commodity prices,” the analysts said.
They have also tested the strength of dividends at the majors under a stressed commodity environment, and have found that they all continue to cover dividends through free cash generation.
Glencore-Xstrata and Rio have the strongest coverage for their dividends, although BHP still holds major flexibility in its capital expenditure programme in onshore oil and gas, the analysts said.
Only Anglo fails to cover a BHP equivalent yield of 4.1% with free cash under their bear-case commodity scenario, according to the analysts.
Glencore-Xstrata’s free cash generation could easily support a BHP yield, they said, and it is the best capital and operating...