Rio Tinto (LSE: RIO) shares sport a high dividend yield at the moment. Currently, the prospective yield on offer here is around twice the FTSE 100’s.
Are the miner’s shares worth buying for income? Let’s discuss.
A high income play
At first glance, the dividend here does look attractive. For 2022, Rio Tinto paid out total dividends of $4.92 per share (the company reports in US dollars). At today’s share price and exchange rate, that equates to a yield of over 7%.
For 2023, City analysts expect the miner to pay out roughly the same amount ($4.90 per share). So investors may be able to pocket a fair bit of cash from the stock in the near term.
Not a guaranteed payout
The thing to understand about Rio Tinto however, is that it operates in a very ‘cyclical’ industry. In other words, profits fluctuate a lot (depending on commodity prices).
This makes future dividends very hard to predict. If Rio Tinto’s profits were to fall, it may decide to pay a much lower dividend. So the high yield here isn’t guaranteed.
The forecast for 2023 could be way off the mark.
Two dividend cuts in five years
We can see this cyclicality in the company’s recent dividend history.
This table shows the total dividends Rio Tinto has declared for the last five years.
| Year | 2018 | 2019 | 2020 | 2021 | 2022 |
| Dividend per share | $5.50 | $4.43 | $5.57 | $10.40 | $4.92 |
Ultimately, the payout here has fluctuated significantly. For example, in 2021, it shot up. However, in 2022, it was reduced by over 50%. It was also reduced in 2019.
So investors shouldn’t rely on the high yield here.
2024 dividend forecast
Is another cut likely in the next few years? I wouldn’t be surprised to see one, personally.
Rio Tinto generates the bulk of its revenues from iron ore production. And prices here could easily fall if economic conditions continue to weaken.
Just recently, analysts at JP Morgan said they see prices falling significantly this year due to lower demand for steel.
A lot will depend on China, and the strength of its economy.
It’s worth noting that analysts currently expect a dividend cut in 2024. At present, the forecast for next year is $4.42 per share. That translates to a yield of about 6.5% today.
Share price volatility
Looking beyond the dividend, another issue to be aware of here is that Rio Tinto’s share price fluctuates a lot, depending on commodity prices. If iron ore prices were to fall from here, I’d expect the share price to fall too. This could potentially wipe out any gains from dividend income.
Given that the company’s share price is quite high by historical standards, I’d be a little wary about buying the stock right now.
I think there are likely to be better opportunities to buy Rio Tinto shares in the years ahead.
