Buy BHP Billiton plc And Rio Tinto plc For Your Retirement ISA

Miners BHP Billiton plc (LON:BLT) and Rio Tinto plc (LON:RIO) are good pension stocks

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The ending of compulsory annuities for pensions means that many of us will stay invested in the stock market longer than we previously would have done. That has profound implications that are only gradually becoming apparent. For example,the sheer weight of baby-boomers’ wealth remaining in the equity markets, rather than being annuitised or ‘life-styled’ into gilts, should be a positive factor for share prices.

Another implication, I believe, is that it will encourage people to think about their investments over a longer time horizon. Even if you’re approaching or already in retirement, you could be holding stocks for decades.

On the horizon

There’s an analogy to be drawn with those industries which themselves make investment decisions over decade-long time horizons. Take miners such as BHP Billiton (LSE: BLT) (NYSE: BBL.US) and Rio Tinto (LSE: RIO) (NYSE: RIO.US). During the over-exuberant, cheap money-fuelled Greenspan Era, management pursued size over profitability.

The current agenda in the sector is to cut back on investment, sell non-core assets, cut operating costs and bump up shareholder returns. That’s especially pertinent for BHP and Rio, both of which are heavily dependent on iron ore. Declining consumption of steel in China means that supply of iron ore will outstrip demand this year. Iron ore prices have gone southward.

Simplification

BHP is executing a ‘simplification’ strategy, with speculation that it might spin-off £12bn-worth of non-core businesses. The company talks of four core ‘pillars’ of iron ore, copper, coal and petroleum, with potash as a potential fifth. Its petroleum interests add a distinctive flavour to BHP’s investment case, whilst potash could become hugely important in a world where crop yields must improve to feed a growing population.

Rio has beaten its own efficiency targets, knocking over $2bn off operating costs and $1bn of exploration spending. Like BHP it’s a diversified miner but it’s even more reliant on iron ore, which contributed nearly 90% of last year’s earnings.

Carry on investing

But amidst all the talk of cuts, it’s important to remember that both companies continue to invest: developing mines is a multi-year, even multi-decade undertaking. Both are large-scale, low-cost producers with mines on the doorstep of the big Asian markets. When volumes do pick up, reduced costs will show through in bumper profits.

It’s the kind of long-term thinking that private investors can emulate – such as by buying the shares of BHP and Rio. They’re relatively cheap now because of the outlook for commodity prices, but if you buy them in the down-cycle you can enjoy the benefit when the cycle eventually turns.

Dividends

There’s another big advantage to holding these stocks over a long period. Right now they’re yielding around 3.8%, a tad over the FTSE 100 average. If you reinvest those dividends over a long period, it can seriously boost your wealth. Over the past 25 years, about 60% of the total return from the FTSE All share Index has come from reinvested dividends.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Tony owns shares in BHP and Rio.

 

More on Investing Articles

Investing Articles

Should I buy more Rolls-Royce shares near 500p?

This investor is wondering whether to buy more Rolls-Royce shares this summer or to just stick with those he already…

Read more »

Investing Articles

After its big fall, is the National Grid share price dirt cheap now?

The National Grid share price fell sharply in reponse to new rights issue plans. But is it an even better…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Starting in June, I’d invest £1,000 a month to aim for a £102,000 second income in retirement

This author highlights a less well-known FTSE 100 stock that could help his portfolio generate a very big second income…

Read more »

Investing Articles

Down 47% in 5 years, is the IAG share price due a bounce?

Many companies in the travel sector have seen fierce rallies since 2020. But with the IAG share price still down…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

Despite its drop, I reckon this is one of the best FTSE 100 stocks to buy and hold!

The FTSE 100 has been climbing in 2024 but this favourite of our writer's has been falling. Despite this, she’s…

Read more »

Investing Articles

AI stocks vs EV shares; which is the best sector for me to invest in?

Jon Smith considers the recent rally in AI stocks and weighs up whether to allocate more money there versus EV…

Read more »

A graph made of neon tubes in a room
Investing Articles

Do Greggs shares have even more growth ahead?

Greggs shares have seen some solid growth in the last few months, as the economy shows positive signs. But is…

Read more »

Investing For Beginners

How I’d aim to grow my Stocks & Shares ISA from £20k to £1m

Jon Smith explains how diversification and focusing on sectors for the future can help grow his Stocks and Shares ISA.

Read more »