This FTSE 100 beast keeps paying out billions in cash. I’d buy its shares today!

In just one year, this FTSE 100 giant paid £3.65bn in cash to shareholders. I’d buy to grab a slice of this cash mountain.

| 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.

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.

American satirist Mark Twain once remarked, “A mine is a hole in the ground with a liar at the top”. While this adage may apply to lesser firms, FTSE 100 mining giant Rio Tinto (LSE: RIO) is one major exception to the rule.

Rio Tinto is a FTSE 100 beast

As a value investor, I’m always on the hunt for shares in large (ideally, FTSE 100), stable, resilient, well-managed, and profitable companies. For me, Anglo-Australian multinational miner Rio Tinto – an absolute beast valued at almost £80bn – almost perfectly fits the bill.

This FTSE 100 firm’s big deal is its ability to pay out enormous cash dividends to its shareholders. In its half-year report released on Wednesday, Rio revealed that it would pay out another $2.5bn (£1.9bn) in cash to shareholders, for an annual total of £3.65bn. That’s more than half (53%) of the mining giant’s earnings.

Rio revealed underlying profits were down 4% to $4.75bn in the first half of 2020, ahead of expectations. This allowed the FTSE 100 firm to declare an interim dividend of $1.55 per share. Combined with its final dividend for 2019, Rio paid out an incredible $4.8bn in cash to its happy shareholders. This boosts the global giant to #4 in the list of biggest FTSE 100 dividend-payers.

As for size, you don’t get much bigger than Rio, whose market value at the current share price of £45.92 is a whopping £79.1bn. This makes the miner one of the FTSE 100’s super-heavyweights.

This FTSE 100 share is getting cheaper

At £45.92, Rio shares have dipped 83.5p (1.8%) today, despite unveiling upbeat results two days ago. However, the FTSE 100 has had a weak week, falling 170 points (2.8%) over the past five days.

Then again, Rio shares have easily beaten the wider FTSE 100 during the Covid-19 crisis. Over the past 12 months, Rio’s share price has declined a mere 1.1%, versus a slump of 22% for the FTSE 100.

Rio shares aren’t expensive and pay big dividends

On 21 July, Rio shares almost hit £50, so they have slipped 8% in the past 10 days. At the other end of their range, shares in this FTSE stalwart dived to £29.54 on 23 March.

During the depths of the market meltdown, Rio shares were clearly a howling bargain at under £30. However, I think they remain inexpensive today and proffer ownership of one of the biggest cash torrents in the FTSE 100.

After slipping back from their recent high, Rio shares trade on a price-to-earnings ratio of 13.8, which is not expensive when measured against the wider market. What’s more, Rio is likely to see an earnings boost from rising iron-ore prices, which recently topped $110 a tonne.

For me, Rio’s main attraction is its ability to churn out oodles of cash to shareholders, like an ATM on steroids! Its current dividend yield of nearly 6.4% is very tempting, which is why I would buy and hold its shares today for their generous income.

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.

Cliffdarcy 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

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »