Why I’m Bullish On Rio Tinto plc & Big Yellow Group plc

Although 2015 has been a challenging year for Rio Tinto (LSE: RIO), the company appears to be doing all of the right things through which to stage a long term recovery. Clearly, the falling price of iron ore which, earlier in the year, reached a ten-year low has been a major drag on performance, but Rio Tinto’s increased production is likely to offset this decline to an extent in future.

More importantly, though, is the improved position which increasing production volumes has on a relative basis. In other words, Rio Tinto continues to gain versus its sector peers, with the company’s ultra-low cost base and sound financial standing likely to mean that it can outlast the competition during a tough period for the wider mining sector.

Furthermore, Rio Tinto is reducing capital and exploration expenditure and, as its recent results showed, cash flow appears to be sufficient to maintain its current level of dividend as well as complete the necessary sustaining capital expenditure. As such, and while a dividend cut cannot be ruled out, dividends per share are expected to be covered 1.13 times in the current year. With Rio Tinto offering a yield of 6.5%, it remains enticing for income-seeking investors.

Of course, Rio Tinto’s bottom line is forecast to fall by 49% this year and by a further 9% next year. This has the potential to keep investor sentiment pegged back but, for long term investors, the company’s strategy looks set to place it on a sound growth trajectory. And, with it trading on a price to earnings (P/E) ratio of 13.6, it appears to offer good value for money, too.

Meanwhile, storage specialist Big Yellow Group (LSE: BYG) is experiencing rather different trading conditions to Rio Tinto. It continues to see demand for its services increase, with today’s half-year results showing that occupancy rates have risen from 73.2% in March 2015 to 77.3% at the end of September 2015. A key reason for this is a lack of competition in the south east and, looking ahead, this scarcity value is likely to see Big Yellow’s occupancy rate rise further.

As a result of the increased occupancy, Big Yellow’s adjusted pretax profit soared by 30% versus the comparable period from last year and this means that the interim dividend has been increased by 16%. As such, Big Yellow now yields 3.3% and, with the company being forecast to increase its bottom line by 14% for the full year and by a further 13% next year, additional rises in shareholder payouts are on the cards.

Certainly, Big Yellow’s P/E ratio of 24 is relatively high, but its capital growth potential is significant. That’s at least partly because it has the financial capability to add new capacity, but mainly because occupancy rates are likely to grow as the UK economy continues to move from strength to strength. Therefore, now appears to be a good time to buy a slice of the business, even after it has risen by 125% in the last five years.

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Peter Stephens owns shares of Big Yellow Group and Rio Tinto. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.