What’s going on with the Rio Tinto share price?

Rio Tinto posted a great set of results earlier today, but its share price has barely moved. What’s going on? 

| 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 FTSE 100 miner Rio Tinto (LSE: RIO) released another set of strong results today, showing that it continues to benefit from the upswing in commodity prices. Yet, its share price is almost unchanged from yesterday. As a potential investor in the stock, I’m wondering why there is so little reaction, and want to figure out if there is anything I am missing. 

Big earnings for Rio Tinto

First, the basics. For the half-year ending 30 June 2021, its net earnings grew by a huge 271% to $12.3bn from the year before. Its sales revenues grew by 71%. It has declared a dividend of around £4 so far, which translates into a dividend yield of 6.7%.

This is a pretty sizeable yield, even at a time when a number of FTSE 100 companies have increased dividends. And, it also adds to the company’s credentials as a big dividend payer over time. Over the last five years, its dividend yield has averaged 5.3%.

Risks to performance

But it can continue to do so only if its performance stays robust. Elevated industrial metals’ prices have helped it in this regard. Rio Tinto’s CEO, Jakob Stausholm, acknowledges this in the results statement saying “Government stimulus in response to ongoing COVID-19 pressures has driven strong demand for our products at a time of constrained supply resulting in a significant spike in most prices….”. To me, this suggests that as government spending gets withdrawn over time and supply constraints ease, things may not look as rosy for Rio Tinto. 

Additionally, its production was impacted in the first half of the year as well. Both iron and copper production saw a decline from the year before. Since iron contributes to much of the company’s net profits, I think this is a red flag. 

These factors may be holding back investors from buying the stock, which touched the highest levels in over a decade recently. In fact, even after softening from its recent highs, the Rio Tinto share price is still up some 26% from last year. This can explain why it is in limbo for now. 

What’s next for the Rio Tinto share price?

At the same time, based on my quick estimates from the latest data, its price-to-earnings (P/E) is a little over 11 times. This means that the seemingly high share prices are justified by the company’s performance. Moreover, there is a possibility that its financials can stay strong. 

So far, the Chinese government’s stimulus has driven up commodity prices. But the US stimulus can play its part over the next few years as well. Also, as the economy picks up after the pandemic, demand for metals can rise further.  

This makes me positive about the Rio Tinto shares for the foreseeable future. Also, I think buying metal stocks is a good idea to protect my investments against sustained high inflation. It is a good stock for me to buy now.

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.

Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the Rolls-Royce share price end 2024 above £5?

As the Rolls-Royce share price continues its remarkable run, our writer considers where it might be at the end of…

Read more »

Investing Articles

UK stocks are hitting all-time highs! Yet these 2 still look cheap to me

The FTSE 100's on a roll. But it's still possible to pick bargain UK stocks, provided we know where to…

Read more »

Satellite on planet background
Investing Articles

At just under £14, can BAE Systems’ share price still be a prime FTSE 100 bargain? 

Despite its bullish price run, BAE Systems’ share price still looks undervalued to me and appears set for strong growth.

Read more »

Photo of a man going through financial problems
Investing Articles

2 dividend shares I’d avoid like the plague in today’s stock market

The UK stock market is full of high-yield dividend shares that could equate to a steady stream of passive income.…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

£17,000 in savings? Here’s how I’d aim to turn that into a £29,548 annual second income!

Generating a sizeable second income can be life-enhancing and can be done from relatively small investments in high-dividend-paying stocks.

Read more »

Investing Articles

With as little as £300 a month invested, this stock could net £16,000 a year in passive income

Putting a few hundred pounds each month into the stock market could eventually generate a five-figure annual passive income, this…

Read more »

Black woman using loudspeaker to be heard
Investing Articles

This dividend stock could pop next week!

This dividend stock happens to have one of the biggest dividend yields I've come across -- 10.7% -- but I'm…

Read more »

Investing Articles

Up 81%, can this FTSE 100 turnaround share keep surging?

This recovering retailer has been one of the FTSE's greatest performers over the past year. Royston Wild considers whether it…

Read more »