Investing in growths stocks can be exciting, but buying companies for their dividends can be equally rewarding. As such, this FTSE share with an 11.6% yield could be a great way to lock in income for my portfolio. Let’s take a closer look.
Attractive dividend
The Rio Tinto (LSE:RIO) share price is down 12% in the last three months and currently trades at 4,984.50p.
For 2021, the mining firm paid a record dividend of $10.40 per share. At current levels, this equates to a dividend yield of 11.6%, which is one of the highest on the market at the moment.
Investing £1,000 would buy me 20 shares. With last year’s dividend, I could derive $208 per year in income, equivalent to around £177.50.
It’s important to note, however, that dividend policies may be subject to change.
Mixed financial results
So how reliable is the dividend? Recent financial results have been mixed. For the six months to 30 June, free cash flow was $7.1bn, while underlying profit was $8.63bn. This latter figure was above the forecast of $8.37bn.
On the other hand, interim profit was down 29% year on year. In addition, the company lowered its interim dividend to $2.67 per share.
While this may seem like bad news, it’s worth noting that this interim payout, amounting to $4.3bn, is still the second highest payout in the firm’s history.
Much of this negative news, of course, can be attributed to short-term issues. These include labour shortages, supply chain problems, and a tight commodity market.
When reading results such as these, I’m inclined to remember that I’m investing for the long term, and that near-term issues aren’t always the most important feature for me when making an investment decision.
Furthermore, a cash balance of $13.91bn should ensure that the company can overcome any short-term problems and continue its payouts.
Expansion into the copper market
Recently, Rio Tinto has been seeking to expand its presence within the potentially lucrative copper market.
It has increased its bid for Turquoise Hill, the majority owner of the Oyu Tolgoi copper mine in Mongolia. Between 15 and 24 August, the company raised its bid from $2.7bn to $3.1bn. This is an indication that it sees value in this project and wants to add it to its portfolio.
The appeal of the copper market appears to be the utility of the base metal. It’s a critical component in products that are central to decarbonisation. These include electric vehicles (EVs).
Although we don’t yet know the outcome of Rio Tinto’s recent bid, a successful transaction could add significant value to the company’s operations.
Overall, this business could allow me to derive a reasonable amount of income on an annual basis. Although there are challenges, the company is clearly set on controlled expansion, especially in the copper segment. To that end, I’ll add the firm to my portfolio in the very near future.
