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.
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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.