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The world's second-biggest mining firm, Rio Tinto, has raised its dividend after higher iron ore prices and cost-cutting helped return it to profit.

The London-based company is increasing its annual payout to shareholders by 15% to $1.92 per share, beating analyst estimates for $1.81 per share.

This comes after it reported a full-year net income of $3.7bn (£2.2bn), reversing a $3bn loss in 2012.

Rio Tinto shares traded in London rose by 1.5% after its earnings release.

"These strong results reflect the progress we are making to transform our business and demonstrate how we are fulfilling our commitments to improve performance, strengthen the balance sheet and deliver greater value for shareholders," Rio Tinto chief executive Sam Walsh .

The 64-year-old executive has cut costs by more than $2bn since taking the helm of the company more than a year ago.

He has also pared the company's debt levels, increasing the amount of cash it can use and return to shareholders.

Rio Tinto's latest results mark a turnaround for the mining giant, which sacked its previous chief executive, Tom Albanese, after the company posted its first annual loss in 18 years.

Back then, the company was forced to write down $14bn because of an underperforming aluminium business and coal assets in Mozambique.

Rio Tinto earns most of its money from the production of iron ore, which is used in steel production, and copper.

However, its fortunes are closely tied to the economic health of China, the world's biggest buyer of iron ore.

Profits were hit after prices fell last year on concerns that China's economy was cooling, forcing major mining companies to pull back their spending on new mines and production.