Morgan Stanley ups Rio Tinto price target

24th Sep 2014 17:50

Iron ore miner Rio Tinto's chief executive officer is reintroducing the principles which held before the "super-cycle" at the miner, including a dividend pay-out ratio which averaged nearly 50%.That saw the shares trade at a 3% dividend yield or at 0.80 times relative to the FTSE All Share. As well, the company will again adjust its investments and pay-out ratio to the company's growth potential and the commodity price environment.On that basis, broker Morgan Stanley sees dividend growth of 34-41% to $2.57-2.70 per share by 2016 (on base case and spot price scenario).That means potential exists for the dividend yield to fall from 5.0-5.5% in 2016 to 3.5-4.0%. "At its CMD (Capital Markets Day) in December and its full-year results in Feb 2015, we believe RT can convince the market it has the resources and intentions to deliver."Due to the above the broker raised its recommendation on the shares to 'overweight' from 'equalweight' while hiking its price target to 4,000p from 3,540p.