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

Investing Articles

With an 8% yield and a P/E below 12, Taylor Wimpey looks in deep value territory

Harvey Jones wants to make a bit of noise about Taylor Wimpey shares. The FTSE 100 stock may be volatile…

Read more »

A young Asian woman holding up her index finger
Investing Articles

Up 8% today, is this one of the FTSE 100 best growth shares to buy?

Looking for the best FTSE 100 growth shares for a winning portfolio? This soaring blue chip is worth serious consideration,…

Read more »

Investing Articles

With yields over 7%, here are two FTSE 100 dividend shares to consider in 2025

As the FTSE 100 trades near all-time highs in 2025, some of its top dividend shares still offer highly attractive…

Read more »

Investing Articles

Here’s why Coca-Cola HBC stock jumped over 9% in the FTSE 100 today

This stock was flying to a record high in the FTSE 100 today, boosted by a strong set of earnings.…

Read more »

Investing Articles

1 FTSE 100 stock an investor consider for a Stocks and Shares ISA if Cash ISAs get canned

The talk in the papers is of the Cash ISA getting axed, but the Stocks and Shares ISA seems secure.…

Read more »

Chalkboard representation of risk versus reward on a pair of scales
Investing Articles

A 5.5% dividend forecast? £2k invested in Lloyds shares could earn an investor this much by 2027

Jon Smith talks through the dividend forecast for Lloyds stock in the coming years and weighs up whether it could…

Read more »

Investing Articles

How much in savings would investors need to target a £3,000 monthly passive income?

Our writer outlines a simple recipe to earn passive income from shares. The ingredients include diligent saving, ample time and…

Read more »

Investing Articles

The average Stocks and Shares ISA turned £10k into £25k in a decade. I aim to beat that

Harvey Jones is impressed by the long-term total return on the average Stocks and Shares ISA. Yet he still reckons…

Read more »