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Rio Tinto Group (NYSE:RIO), a company with a rich history dating back to 1873, has been a trusted name in the mining industry for over a century and a half. The company’s profile states:
RIO Company Profile (Seeking Alpha)
RIO, a global player in metals and minerals mining, processing, and distribution, offers an attractive investment proposition. With a share price of $70.21 on May 7 and a market cap of $117.56 billion, RIO trades an average of over 2.935 million shares daily. The last semi-annual dividend, on March 7, 2024, was a substantial $2.58 per share, translating to an annual above-market 7.35% yield. This presents an exciting opportunity for investors seeking high dividend yields and the potential for significant returns.
RIO stands out in terms of valuation, with a current price-to-earnings ratio that is significantly lower than the SPDR® S&P 500 ETF Trust (SPY). This, coupled with its high dividend yield, makes RIO an attractive and potentially lucrative investment.
A bullish trend since the 2020 low
Rio Tinto PLC ADRs have been on a bullish path since reaching a spike bottom in March 2020 as the global pandemic gripped markets across all asset classes.
Twenty-Year Chart of RIO Shares (Barchart)
The chart highlights that RIO shares fell to $35.35 in March 2020. At over $70.20 on May 7, RIO nearly doubled. RIO reached a $95.97 peak in May 2021 before correcting. While the shares have made higher lows since March 2020, they have made lower highs since May 2021. The narrowing trading range has created a V-shaped consolidation pattern. A move above technical resistance at the December 2023 $75.09 high or below the technical support at the September 2022 $50.91 low could cause a significant price move. At $70.20 on May 7, RIO was well above the midpoint of the support and resistance levels.
Diversified commodity exposure in a bullish raw materials environment
Copper (HG1:COM) is the leading industrial commodity that tends to be a bellwether for other raw material prices. RIO is a leading copper producer.
World’s leading copper producers (Canadianminingjournal.com)
As the chart highlights, in 2020, RIO was the world’s ninth-leading producer.
Twenty-Year LME Copper Forwards Price Chart (Barchart)
As the twenty-year chart shows, LME copper forwards broke a critical technical upside level in April 2023 and are on a bullish path to challenge the March 2022 record high of $10,845 per ton.
Attractive factor grades- Profitability and valuation shine
Rio Tinto’s market cap is under $120 billion, making it a leading global raw materials producer. However, it is slightly below BHP’s over $142 billion value. BHP Group (BHP) recently attempted to expand its commodities footprint with an offer to buy Anglo American (OTCQX:AAUKF). Anglo rejected BHP’s takeover bid. BHP could now aim for a merger or takeover of RIO. Combining BHP and RIO would create a mega-producer, creating significant economies of scale.
Meanwhile, RIO’s Factor Grades are highly attractive for profitability and valuation.
Seeking Alpha RIO Factor Grades (Seeking Alpha)
As the chart shows, RIO receives top grades for value and profits, but a low grade for growth, creating the opportunity for M&A.
While the stock is on a bullish path, momentum has been slow as the shares are in a consolidation pattern. A takeover or accretive merger could send the shares significantly higher, as RIO’s current P/E is below ten times earnings.
Dividends offer the ability to earn while waiting for capital appreciation
At $70.20 per share, RIO pays its shareholders an above-market $5.16 dividend, translating to an attractive 7.35% yield.
Seeking Alpha RIO Dividend Grades (Seeking Alpha)
The Dividend Grades reflect concerns over the safety of the yield, which could benefit from a merger or acquisition.
Meanwhile, at a 7.35% yield in a bullish commodities landscape with a P/E ratio far below the average of the S&P 500 Index (SP500) at nearly 18 times earnings, RIO offers shareholders a significant dividend while waiting for capital appreciation.
RIO offers commodity exposure: Buy on dips and reinvest dividends for a raw materials supercycle
Senior commodity producers with experience extracting metals and minerals from the earth’s crust and processing the raw materials can offer shareholders leverage to the underlying commodities they produce and process.
RIOs P/E ratio is lower than BHP’s (BHP), Glencore’s (OTCPK:GLNCY), Freeport-McMoRan’s (FCX), and Southern Copper’s (SCCO). At $70.20 per share, RIO shares are inexpensive and offer value. I am a buyer of RIO on any price weakness, leaving plenty of room to add on further declines. Inflation, geopolitical turmoil, and the potential for a Chinese economic rebound are compelling reasons to own RIO in the current environment.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
