The FTSE 100 was up on Friday morning, but Rio Tinto (LSE:RIO) shares fell. Shares in the mining giant haven’t performed well over the past week. They’re down 7.5% over the past five days, and fell a further 2.5% on Friday morning.
Rio Tinto is particularly well known for being one of the highest-paying dividend stocks on the index. In fact, it is expected to pay out £8bn to shareholders this year. No other company will pay more in 2022.
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So, maybe this dip is a good chance for me to buy a FTSE dividend giant.
Why is the share price down?
There are a couple of reasons why this mining stock is down today. Both of them are related to iron ore prices.
China’s renewed Covid-19 restrictions are one reason for this. China is the world’s largest steel producer and lockdown will likely dampen demand for iron.
As a result, Rio Tinto wasn’t the only mining stock to see its share price fall on Friday.
But there’s another China-related issue too.
According to The Financial Times, China is looking to consolidate the country’s iron ore imports through a new centrally controlled group. It hopes to do this by the end of this year.
The paper suggests that Beijing is doing this to counter Australia’s dominance over the sector. It hopes to secure lower prices on the behalf of Chinese companies.
This is seemingly having a negative impact on the price of iron ore.
However, there’s no guarantee that China’s plan will come to fruition. For one, rumours that China will centralise the buying of iron have been doing the rounds for decade. Secondly, will it even work?
These factors have compounded generally negative economic forecasts around the world.
A strong buying opportunity
The Rio Tinto share price has been pretty volatile over the past year. But, broadly, I think long-term prospects are good for this miner, and that’d why I’d buy this stock.
In the short term, we’re seeing some negative economic forecasts that won’t be good for commodity demand. Moreover, China doesn’t appear to have a strategy for dealing with Covid other than restrictions that reduce economic activity.
So, there could be some short-term pain for miners.
But in the long run, we’re moving in an age of scarcity and I wouldn’t be surprised to see commodity price remain higher for longer.
The move towards the electric vehicles will likely see demand for certain metals increase too.
At today’s price, Rio Tinto has a price-to-earnings (P/E) ratio of just five. That’s very cheap, but the miner is coming off the back of a very strong year. Companies in cyclical industries also tend to have lower P/Es.
I’d also buy Rio Tinto for its sizeable dividend yield, which is 10.6% at today’s price. The stock is going ex-dividend on August 11, so that’s definitely a date worth remembering.
