The dividend decision gives the world’s second largest mining firm flexibility to pursue acquisitions in future, analysts said.
Chief executive Sam Walsh acknowledged his team was keeping an eye out for top-tier assets, particularly in copper.
“Getting the balance right between growth and shareholder return is important to us,” Mr Walsh said.
The payout policy change paves the way for arch rival BHP Billiton to take a similar step later this month, as miners come under pressure to shore up cash to weather the worst downturn to hit the sector in nearly two decades.
“Whilst 2015 was a volatile year, 2016 is shaping up to be even tougher. The macro outlook remains challenging,” Mr Walsh told reporters.
The miner bowed to pressure from investors and credit rating agencies to give up its “progressive dividend” policy, under which it promised never to cut its payout from year-to-year, to better reflect commodity cycles.
Rio still managed to hold its 2015 full-year dividend steady at $2.15, although below market forecasts, at a time when all its peers are tipped to cut or suspend their payouts.
It promised to pay at least $1.10 in 2016 as a transition to the new policy, limiting any cut to 49%.
“This is a really nice way for the market to take on board that BHP will announce in two weeks it will cut [its dividend].
"Any doubt is gone,” said Peter O’Connor, an analyst at Shaw and Partners in Sydney.