Dividend party from commodities giants Glencore and BHP adds strength to London stock market

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Positive earnings and big dividend payments have investors cheering on mining and metals titans Glencore and BHP, giving strength to the London market on an otherwise subdued day of European stock trading.

Shares in Glencore GLEN, +2.44% surged more than 2% while BHP BHP, +0.94% stock rose 1.5%.

British-Swiss group Glencore posted adjusted earnings before interest, taxes, depreciation, and amortization — a measure closely watched by analysts — of $11.6 billion, well above expectations. Healthy cash flow in the second half of the year helped reduce net debt by 10% to $15.8 billion.

“There has been growing talk of a commodities supercycle lately so that should keep the firm in a positive light,” said David Madden, an analyst at CMC Markets.

It is the last set of results overseen by Glencore Chief Executive Ivan Glasenberg, who also owns 9% of the group’s shares. Glasenberg will step down after 18 years in charge, to be replaced by Gary Nagle.

British-Australian miner BHP came hot on Glencore’s heels. The group reported a 16% increase in underlying attributable profit in the six months to Dec. 31, 2020 of $6 billion. That came in slightly below analyst expectations.

But analysts paid particular attention to dividend payments from the two companies. Glencore will reinstate its dividend and pay out 12 cents per share to investors in 2021, while BHP hiked its interim dividend by 55%, to $1.01 per share.

Also read: After 10 Years of Underperformance, Commodities Are Set to Boom. Here’s How to Play the Rally.

“The miners’ dividends will help to fill the large hole left by BP and Shell in particular and increases from the diggers underpin consensus forecasts for an increase in total FTSE 100 dividends for 2021 of one sixth,” said Russ Mould, an analyst at AJ Bell.

“With Rio Tinto also expected to unveil a healthy increase in its full-year dividend for 2020, the miners look set to become the largest contributing industrial sector to the FTSE 100’s overall payout in 2021, according to analysts’ forecasts,” Mould said.

Commodities remained a theme across London trading, with oil in the spotlight as crude prices hover around their highest level in more than a year. 

West Texas Intermediate was rising but continued to float just below $60 a barrel, after passing that psychologically-important price point on Monday. Benchmark Brent crude fell slightly but remained well above $63 a barrel.

Shares in London-listed major oil companies BP BP, +0.02% and Royal Dutch Shell RDSA, -0.15% lifted at the open but pared gains.

Plus: The fifth commodity supercycle has started, says highly regarded JPMorgan strategist

London stocks as a whole were buoyant. The FTSE 100, the index of the top U.K. stocks by market capitalization, rose 0.2% ahead of other major European indexes, which traded below flat.

“Seeing as the U.K.’s vaccination distribution scheme is going according to plan, British stocks are in high demand as there is a view the country will loosen its restrictions in the near-term,” said Madden.

“Speculation has been growing that the U.K. might begin to unwind some of its restrictions early next month.”

Shares in airlines, which have been highly sensitive to the developments in travel restrictions during the COVID-19 pandemic, jumped in London trading. International Airlines Group IAG, +2.04%, which owns British Airways, took off alongside Ryanair RYA, +4.11% and easyJet EZJ, +1.50%.