As the big iron ore miners prepare to list the extent of their earnings slump in the next two weeks, investors are really only focused on one issue: dividends.
Global miners BHP Billiton and Rio Tinto have continued to pump more iron ore into the market during the past two years, despite falling prices for the steel-making commodity.
They have also remained adamant about maintaining their controversial policy of holding or increasing dividends at every result, despite pressure from large investors and analysts.
However, with the commodities sector now staring at a prolonged slump in prices due to fears of lower demand from China and excess supply, both miners have been forced in recent weeks to batten down hatches and shift focus to preserving financial strength.
Investors believe, it could also finally force their hand on payouts.
"We would be expecting a correction in their dividend payouts," Anna Kassianos, resources analyst at fund manager Platypus Asset Management said.
"These are actually cyclical companies, and any move to put the dividend payout ratio in line with cash flows would be taken as a positive."
Earlier this month, ratings agency Standard & Poor's cut BHP's credit rating by a notch and placed it, and rival Rio Tinto, on negative watch.
S&P expects a material drop in both companies' results in coming months, as metal prices come under further pressure. It also asked both to ditch their progressive dividend policy, and cut costs.
The worse-than-expected slump in prices of iron ore and oil to multi-year lows, has left the world's two largest miners reeling.
In January, BHP wrote down $US7.2 billion ($A10.41 billion) in the value of its US shale assets, lowered its iron ore production target for the financial year, and flagged a further $1 billion hit to its bottom line.
Rio also slashed its capital expenditure budget for 2016, and in January announced it would freeze all staff pay as economic growth in China - Australia's biggest iron ore customer - slowed to a seven-year low.
"We are not expecting any other further impairments," Fat Prophets resources analyst David Lennox said.
"But overall, it will not be a pretty set of numbers."
He expects BHP to report underlying profit of around $US300 million for the half year, weighed down by the impairment charge against its US shale assets. It's first half underlying profit was $US5.35 billion.
Rio Tinto is likely to report full year underlying profit between $US4.6 billion to $US5.0 billion. That compares poorly with $US9.3 billion from a year ago.
BHP shares have slumped 42 per cent in the past 12 months, while Rio shares are down 30 per cent.
Mr Lennox still rates the two miners as a "buy", saying they will benefit from any recovery in commodities prices, given the amount of work they have already done on cutting costs.
Share
