FTSE mining giant Rio Tinto (NYSE:RIO)'s shares have seen a 19% decline from their March peak this year, primarily due to market concerns about China's economic recovery after implementing severe lockdowns as part of a zero-COVID policy. Rio Tinto's performance is closely tied to China, the top global commodities buyer since the mid-90s, and any economic fluctuations in the Asian nation significantly affect the mining company.
However, recent indicators are showing signs of economic revival in China. The third quarter data revealed an unexpected 4.9% year-on-year growth, surpassing market forecasts of 4.4%. This upturn, along with Rio Tinto's resilient core business and high dividend yield, has made the stock appealing despite potential risks such as possible hitches in China's recovery or a potential global economic downturn.
On Tuesday, Rio Tinto reported its Q3 production results, which showed a 1.2% increase in iron ore shipments. These shipments are crucial for China's steelmaking industry and are predicted to constitute approximately 54% of Rio’s projected revenue this year. Additionally, the production of mined copper and aluminum, essential for China’s renewable power generation and electric vehicles respectively, also saw an uptick.
Last year, Rio Tinto paid out dividends of $4.92 per share, yielding 6.9%. Based on last year's dividend at today's exchange rate and share price, the yield is 7.7%, nearly double the FTSE 100’s current average payout of 3.8%. A £10,000 investment in Rio Tinto now could potentially yield £7,700 over ten years excluding gains from dividend reinvestment or share price appreciation.
Despite disappointing H1 results this year, Rio Tinto maintains its policy of distributing 50% of underlying earnings to shareholders. This commitment is supported by the company's robust dividend cover ratios of 1.66-1.67.
In conclusion, despite the recent drop in share price, Rio Tinto's resilient core business and high dividend yield make it an attractive investment opportunity, especially with signs of China's economic recovery.
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