The Rio Tinto share price falls as profits decline. Should I buy the stock?

The Rio Tinto share price has slid 2% following the release of its 2023 results. Should this Fool rush in and buy some shares?

| 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.

Asian man looking concerned while studying paperwork at his desk in an office

Image source: Getty Images

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.

As I write, the Rio Tinto (LSE:RIO) share price is down 2% following the release of the FTSE 100 mining stalwart’s full-year results on 21 February.

Its share price fell 3.3% yesterday (20 February), making it the largest faller on the index for the day. After what’s been a slow start to the year for the stock, shareholders would have been hoping its 2023 results will provide it with an uplift.

But what’s next for Rio Tinto following the release? And should I be buying some shares? Let’s explore.

Profits decline

So, why has the market reacted negatively to its latest update?

Well, for 2023 the business reported underlying earnings of $11.8bn, a drop off from the $13.4bn reported in 2022.

It also took a net impairment charge hit of $700m after tax. The business pinned this cost predominantly down to its alumina refineries in Queensland.

Rio Tinto also saw its underlying earnings before interest, taxes, depreciation and amortisation (EBITDA) fall by $1.5bn to $23.9bn, largely due to lower prices for commodities. That said, it did come in ahead of analyst forecasts.

Although prices in iron ore rose, this was offset by lower pricing for copper, diamonds, and industrial minerals. While inflationary pressures continue to subside, Rio Tinto still felt some effects, largely in third-party costs.

A strong dividend

That’s clearly not good news. But does that mean I should be avoiding the stock?

Well, I like to target shares that provide a stable passive income. Naturally, with a 6.2% dividend yield, Rio Tinto has been on my watchlist for some time.

For the year, it announced a dividend of 435 cents per share, a 12% decline year over year. Despite the fall, that’s still a 60% payout, highlighting the firm’s strong balance sheet.

Speaking on the results, CEO Jakon Stausholm stated that Rio Tinto: “will continue paying attractive dividends and investing in the long-term strength of our business”.

Influenced by China

There is also the issue of China to consider. Rio Tinto operates in a highly cyclical industry. Growing nations such as China, and the performance of its economy, can heavily dictate its share price movements.

The stock’s decline yesterday was fuelled by the People’s Bank of China cutting its five-year loan prime rate by 25 basis points to 3.95%, a larger cut than what was expected. With the Chinese property market also being under pressure following recent wobbles, this could have an adverse impact on Rio Tinto’s performance.

Solid progress

But the business is making solid progress elsewhere.

For example, it alluded to the strides it has made with projects including its You Tolgoi underground copper mine in Mongolia, where it achieved its first sustainable production. It remains on track to produce 500,000 tonnes of copper per year from 2028 to 2036.

My move

Stausholm highlighted how Rio Tinto’s performance highlights the business’s resilient nature. And I agree.

However, I see better options out there for my portfolio at the moment. Its meaty yield is tempting, but I’ll be holding off from buying for 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.

Charlie Keough 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

artificial intelligence investing algorithms
Investing Articles

Everyone’s talking about AI! Here’s 1 FTSE stock to consider buying for exposure

A hot topic right now is artificial intelligence (AI). This Fool explains how this FTSE stock could offer investors an…

Read more »

British Pennies on a Pound Note
Investing Articles

1 penny stock I’d buy today while it is 99p

Ben McPoland highlights Windward (AIM:WNWD), a fast-growing penny stock that could benefit from the artificial intelligence revolution.

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

This forgotten FTSE 100 gem could be the best bargain on the stock market

The FTSE 100 is full to the brim of high-quality businesses. But this Fool has his eye on this 'forgotten'…

Read more »

Investor looking at stock graph on a tablet with their finger hovering over the Buy button
Investing Articles

Here’s a FTSE 250 stock I’d put 100% of my money into

If this Fool could buy just one stock from the FTSE 250, Games Workshop would be his choice. Here, he…

Read more »

Fans of Warren Buffett taking his photo
Investing Articles

2 reasons Warren Buffett might love this stock, and 1 reason he might avoid it like the plague

Warren Buffett's one of the best stock pickers of all time. But would he approve of Barclays shares? This Fool…

Read more »

Union Jack flag triangular bunting hanging in a street
Investing Articles

Down 28% in a week! What’s going on with the share price of this FTSE 250 British icon?

There’s one stock in the FTSE 250 that took a bit of a battering last week. But I’m not surprised,…

Read more »

Two white male workmen working on site at an oil rig
Investing Articles

At around £28.50, Shell’s share price looks cheap to me

Shell’s share price still looks undervalued against its fossil-fuel-focused rivals to me, despite it pushing back its carbon reduction targets.

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

433 shares in this FTSE 100 dividend superstar could make me £18,803 in annual passive income!

This overlooked FTSE 100 gem has one of the best yields in the index, looks undervalued, and makes me big…

Read more »