Some investors may view mining giant Rio Tinto (LSE: RIO) more as a dividend play than a growth share. That’s forgivable, given poor recent performance. The shares are up less than 10% over five years. Now they’ve sprung into life.
Over the past 12 months, the Rio Tinto share price has climbed around 26%, most of which came in the last three months. Is this the opening salvo of an explosive recovery?
First, it’s worth revisiting why Rio Tinto has struggled. The biggest issue is its heavy reliance on iron ore, which typically generates well over half of group profits. Prices have fallen sharply from post-pandemic highs as China’s property sector slumps, hitting demand, revenues, and earnings.
Rio Tinto recovery potential
China still faces serious challenges, but the outlook is a little brighter. Goldman Sachs recently upgraded the country’s GDP growth forecast to 4.8% for 2026, citing stronger-than-expected exports and greater focus on advanced manufacturing.
Rio has also had to contend with post-pandemic supply chain disruption and high inflation, which has pushed up labour, energy, and input costs, while squeezing margins. Operational issues have added to the pressure. In Australia, cyclones and flooding hit iron ore output, while the board cut production at the Yarwun Alumina Refinery to extend its life.
In October, Rio said it remains on track to meet its 2025 production targets. Bauxite and copper production rose 9%, but iron ore output was flat. That mixed picture helps explain why confidence has been slow to return.
FTSE 100 dividend play
The balance sheet deserves close attention. Net debt stood at roughly $14.6bn at the end of June 2025, up sharply from around $5.5bn at the end of 2024. That reflects major investment activity, including the Arcadium lithium acquisition and increased project financing. Even so, Rio remains financially robust, with around $9bn of cash and strong overall liquidity.
The board cheered investors in December, by announcing plans to release up to $10bn of capital through cost cuts and asset sales. Investors liked that but those who worried they may have missed the recovery shouldn’t be too alarmed. The valuation still looks reasonable, with the price-to-earnings ratio at around 12, albeit up from eight or nine for much of last year.
As the share price has risen, the trailing dividend yield has eased, but it’s still a healthy 5.1%. However, Rio’s recent dividend track record is scrappy. In 2021, it paid a bumper total dividend of 793 US cents per share. It followed that with cuts of 38%, 11.5%, and 7.6% over the subsequent three years, shrinking the 2024 payout down to just 402 cents.
Those buying today are betting that the recent rally marks the start of a more durable recovery. The P/E suggests some value remains, but a lot still depends on the global economy and China in particular.
I think Rio Tinto is worth considering for income-seekers who fancy some recovery potential on top. Especially for those who lack natural resources exposure. This is a cyclical sector, so the best time to invest is when sentiment is low. Despite the recent recovery, we’re still near that point today. Investors should take a long-term view, as ever.
