Earnings results are a great way for investors to judge a company. They’re used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here’s an earnings preview for three FTSE firms reporting results this week.

The usual approach is to compare firms’ new numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. It can also be useful to consider whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. Analysts in the UK don’t always publish earnings previews for quarterly or half-year periods, but given their popularity, the shares covered below are exceptions. All of them have financial years that end in December.

Rio Tinto (H1 Earnings)

Rio Tinto (LSE: RIO) is an Anglo-Australian multinational company. It’s the world’s second-largest metals and mining corporation. The FTSE 100 firm’s main export is iron ore. Rio is set to reveal its H1 numbers for its six months performance ending June on 27 July.

Its earnings preview seems to indicate a slowdown in both its top and bottom lines. This is most likely due to the perpetual lockdowns in China that have been limiting construction activity. China is the group’s biggest customer, hence the gloomy forecasts. That being said, a sudden change in health policy in China could see Rio edge closer to its FY21 figures and could spell a healthy jump in its stock.

Barclays (Q2 Trading Update)

Barclays (LSE: BARC) is one of the UK’s biggest banks. It operates in many countries across the globe, and also operates an investment banking division. The bank is expected to disclose its Q2 figures for its three-month performance ending June on 28 July.

Analysts covering Barclays are expecting the bank to improve on its total income marginally this half, on a year-on-year basis. However, its most recent earnings per share estimate has been downgraded from 7.6p in the last week. The increase to its top line is most likely due to the effects of higher interest rates. Nonetheless, a decrease in investment banking activity from the current bear market is going to cause its bottom line to suffer. But if the dual-listed stock surprises investors with better than expected figures, a rally could be a possibility.

NatWest (H1 Earnings)

NatWest (LSE: NWG) is another UK bank reporting results this week. The group operates a wide variety of banking brands, offering personal and business banking, private banking, insurance, and corporate finance. It’s scheduled to unveil its H1 earnings for its six months performance ending June on 29 July.

Just as is the case with its sector peer, analysts are expecting the same trend. Alongside that, investors in its shares and the wider stock market will be paying attention to its remediation figure and number of late-stage loans to determine whether the UK is heading for a recession. The former is essentially the amount of money allocated as a buffer to cover potential defaults from customers.

The post Earnings preview: Rio Tinto, Barclays, NatWest appeared first on The Motley Fool UK.

More reading

• How much is needed in a SIPP to target a £25,095.20 annual income
• How could the latest Barclays share buybacks impact investors?
• Where next for the Barclays share price, after Q1 fails to inspire?
• Barclays shares just fell 3% after Q1 results. Is this a buying opportunity?
• After crashing 29%, Barclays shares are booming again!

John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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.

General Mills

While the S&P 500 flirts with bear market territory, consumer foods company General Mills (NYSE: GIS) continues to hit all-time highs. On a year-to-date (YTD) basis, the stock is up 11%! Not only that, the board recently approved a 6% increase to its quarterly dividend, bringing its total dividend to $0.54 per share. Nevertheless, what makes it such a lucrative stock is its track record of consistent and growing dividends, which has lasted over 120 years!

Aside from its dividend, however, the company continues to post steady and healthy margins (14.3%), despite ongoing inflationary pressures. General Mills’ top line shows no signs of cooling either when taking June’s Consumer Price Index report into account. Although cereal prices are up 2.5% on average, May’s retail sales data indicates that grocery sales are up 1.2% month-on-month (M/M). This aligns with what CEO Jeffrey Harmening mentioned, that General Mills is benefiting from consumers switching to at-home eating.

Rio Tinto

Another Dividend Aristocrat on my list is Rio Tinto (LSE: RIO). Like General Mills, Rio has been paying consistent dividends for the past few decades, even during the last three financial crises. Nonetheless, its share price is down 3% (YTD).

As the second biggest iron ore producer in the world, Rio exports the bulk of its iron to China. Therefore, lockdowns across China have resulted in a 15% decline in its share price over the last month. Consequently, I’m expecting Rio’s dividend to fall in the near term. But if history is any indicator, a post-Covid rebound in China’s economy will most likely boost Rio’s top line and dividend exponentially. I only need to refer to the difference in dividends from 2020 and 2022 (‘Peak-Covid’ vs ‘Post-Covid’) to make my case.

Additionally, the miner boasts excellent profit margins that average above 20%. With a healthy debt-to-equity ratio of 21.7%, and cash ($15.3bn) comfortably covering debt ($12.2bn), the FTSE 100 firm seems well equipped to handle a potential economic slowdown.

Worthy dividend?

Having said all that, these two dividend stocks have good track records. It suggests that they are able to provide some passive income through good and bad times. As a matter of fact, their average dividend yields outperform the S&P 500. But do I think these stocks are worth a buy?

Well, General Mills’ financials put me off investing in its shares. The manufacturer has a staggering amount of debt ($11.6bn) with a minuscule amount of cash ($819m) in its reserves. With interest rates set to continue rising, debt repayments could become more costly, and potentially lower its dividend. Furthermore, its average price target of $73.87 could indicate that the stock is overvalued at this time.

On the other hand, Rio Tinto has strong financials and earnings power. As a result, the current dip is a buying opportunity for me, as I aim to capitalise on an eventual rebound in the Chinese economy. After all, its average price target is £56.43. This presents me with a 24% upside if I were to invest today.

The post 2 of the safest dividend stocks on earth appeared first on The Motley Fool UK.

More reading

• Why is everyone buying Rio Tinto shares?
• How much does an investor need in an ISA to target £1,500 in monthly passive income?
• £20,000 invested in the FTSE’s Rio Tinto a year ago is now worth…
• How much do I need in a Stocks and Shares ISA to reach a £2,027 monthly passive income?

John Choong 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.

But that fall hides the fact that some shares lost a lot more than others, some for good reasons. But often these days I’ve found that share prices can tend to overreact to any news.

That’s largely because markets are short-term-focused in nature — and that can create buying opportunities for a long-term investor like me.

Looking beyond today’s news

So last week, when I saw one of the highest-dividend shares of the FTSE 100, Rio Tinto (LSE:RIO), trade down over 10%, I knew I had to figure out if it was a short-term problem or long-term opportunity.

What was driving the change — and did I think it was reasonable? Was it perhaps finally a long-term buying opportunity?

Why did Rio fall more than the FTSE 100?

Rio Tinto may be a global mining giant but it has a fairly concentrated risk exposure, with about 60% of its earnings currently derived from iron ore.

Other FTSE 100 constituents have far less exposure to this particular market. So when iron ore prices fell sharply last week, mining shares including Rio Tinto, fell in line with the sell-off, while other shares were unaffected.

Digging into the story further reveals that Chinese demand is the key driver behind iron ore prices, as it’s the biggest buyer, accounting for about 70% of the market.

So markets were correctly reacting to China’s decreasing steel mill production figures, combined with concerns that its strict policies on Covid will continue to dampen demand.

Taking the long-term view on Rio Tinto

However, when I looked at the same information from a long-term perspective, that’s when I saw my opportunity.

I believe that eventually China will figure out a way to live with Covid, like the rest of the world is slowly doing. Plus, commodity markets tend to be highly cyclical — meaning that what goes up will come down and vice-versa.

I’d never buy an oil company when oil prices are at record highs. But buying a high-quality mining company when its core product falls in price — that makes sense to me as a long-term investment.

That’s especially the case for one with a great track record of rewarding its investors with a healthy dividend rate. At a yield of over 12% at time of writing, it’s the highest-paying dividend share in the FTSE 100.

A bumpy ride ahead?

Mining shares are known for being volatile. That means I’m not expecting a smooth ride while owning my new Rio Tinto shares.

For starters, I will not be surprised if that dividend is cut as revenues fall. But even if halved, that still beats the Footsie’s average of around 4%.

Plus, I like the strategy I can see unfolding at Rio with it developing new markets for its other products. That’s going to help decrease its reliance on iron ore prices and China over time and diversify my risk.

I may have to wait, of course. But over the long-term, I think it should prove a great addition to my diversified portfolio. That’s why I bought this FTSE 100 faller last week.

The post Why I snapped up this FTSE 100 faller last week appeared first on The Motley Fool UK.

More reading

• Why is everyone buying Rio Tinto shares?
• How much does an investor need in an ISA to target £1,500 in monthly passive income?
• £20,000 invested in the FTSE’s Rio Tinto a year ago is now worth…
• How much do I need in a Stocks and Shares ISA to reach a £2,027 monthly passive income?

Michelle Freeman owns shares in Rio Tinto Plc. 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.

Rising inflation is wreaking havoc with stock markets, leading to declining valuations and increased volatility. The FTSE 100 is down 6% year to date as a consequence, falling over 3% yesterday on news that the Bank of England was raising interest rates to 1.25%.

Portfolio protection

In the UK, inflation reached 7.8% year-on-year for April 2022. The May figure is expected to be released by the ONS on 22 June and is predicted to be even higher. As a consequence, the Bank of England has raised interest rates to 1.25% with the aim of slowing down price growth. This is putting serious pressure on stock valuations as people can now achieve higher risk-free returns.

In order to protect my portfolio from this rising inflation, I am looking to build up positions in income stocks: low-risk, high dividend-paying companies. These types of stocks are perfect for today’s market as they provide stability amongst market-wide volatility, whilst simultaneously outpacing inflation with high dividends. With inflation at 7.8%, I am hunting for good value stocks that pay a yield surpassing this figure.

In addition to high dividends, I am looking for stocks in ‘defensive’ industries. These are industries that tend to perform well in times of market volatility.

Companies in these industries tend to pay consistent dividends and generate stable earnings regardless of the overall stock market. Examples of defensive industries include telecommunication, as telecom firms often have large amounts of pre-existing infrastructure and large customer bases, meaning they can control prices in line with inflation.

An income stock I have my eye on

A high-yielding stock that I currently have my eye on is Rio Tinto (LSE: RIO). It is a multinational mining company, which specialises in base metals. The stock has performed well so far in 2022, up 12% year to date.

Rio Tinto currently offers a juicy 10.6% dividend yield, protecting me against the eroding value of money. In addition to this, the shares currently trade on a very cheap looking 5.1 price-to-earnings (P/E) ratio. This is strides below the widely accepted P/E ‘value’ barometer of 10. Comparing this to another global miner and close competitor, Glencore, I see value. Glencore currently trades on a P/E ratio of 16.

In addition to this, inflation usually benefits commodity producers, as it increases the value of commodities like gold and silver. Therefore, a Rio Tinto position could be a good inflation hedge for my portfolio. Also, the ongoing war in Ukraine has led to concerns over the supply of steel. Rio Tinto mines iron ore, which is a key component of steel. With the supply shortage further driving up iron prices, Rio Tinto is well positioned for more growth.

Therefore, I think Rio Tinto could be one of the best income stocks to add to my portfolio in the current macroeconomic climate. It has a high dividend, is low risk, and has a cheap valuation. I am therefore looking at buying shares for my portfolio soon.

The post How I am using income stocks to combat rising inflation appeared first on The Motley Fool UK.

More reading

• Why is everyone buying Rio Tinto shares?
• How much does an investor need in an ISA to target £1,500 in monthly passive income?
• £20,000 invested in the FTSE’s Rio Tinto a year ago is now worth…
• How much do I need in a Stocks and Shares ISA to reach a £2,027 monthly passive income?

Dylan Hood 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.

Building momentum

As the world’s second largest iron ore producer, Rio Tinto sources iron for the world’s iron and steel industries. The production of steel is essential to maintaining a strong industrial base for construction, particularly buildings. It is for that reason that the Rio Tinto share price is heavily influenced by iron ore prices.

China is the world’s biggest consumer of steel by far, and consequently, is also the Rio’s biggest customer. As a matter of fact, the world’s biggest country contributes to more than half of the company’s sales.

Due to the heavy reliance on China for its revenues, Rio Tinto has seen its share price fluctuate as China comes in and out of lockdowns. Due to the May lockdowns in Beijing and Shanghai, China’s last few Caixin Manufacturing PMI readings have come in below the desired rate of expansion. But with its government recently relaxing restrictions, Rio Tinto shares have rallied over 10% since. Nonetheless, an air of caution surrounds the stock as the uncertain landscape continues. The Chinese government is mass testing in Shanghai again, sparking fears of a new lockdown.

A recessionary top line?

Inflation continuing to run rampant across the world. Both the OECD and the World Bank published a set of gloomy forecasts earlier this week. The former expects global GDP growth to slow sharply this year at 3%, and remain at a similar pace in 2023.

When coupled with China’s zero-Covid policy, the war has set the global economy on a course of slower growth and rising inflation — a situation not seen since the 1970s.

Source: OECD Economic Outlook

The World Bank also expects emerging markets such as China to get hit the most, downgrading growth in emerging markets to 3.4%. Based on these forecasts, I expect the growth in Rio Tinto shares to start tapering off.

A strong core?

Nevertheless, Rio Tinto does have a decent balance sheet to weather a potential global recession. For starters, it has a healthy debt-to-equity ratio of 21.5%. Additionally, it has enough cash and equivalents to cover its current debt. The FTSE 100 firm also boasts an excellent profit margin of over 33% in FY 2021! That being said, its short-term assets do not cover its long-term liabilities. Therefore, if a massive slowdown in free cash flow were to occur, Rio Tinto may struggle to pay off its long-term debt.

Although earnings are expected to decline as a result of a global economic slowdown, things could also very quickly turn around if China abandons its zero-Covid policy. Rio’s reasonable price-to-earnings (P/E) ratio makes the stock a lucrative one for me. But most importantly, its excellent dividend yield of 10% makes it an income stock for me to hold. So, while I expect the Rio Tinto share price to stall, I’ll be buying shares on the dip to generate some passive income over the long-term.

The post Can the Rio Tinto share price keep growing? appeared first on The Motley Fool UK.

More reading

• Why is everyone buying Rio Tinto shares?
• How much does an investor need in an ISA to target £1,500 in monthly passive income?
• £20,000 invested in the FTSE’s Rio Tinto a year ago is now worth…
• How much do I need in a Stocks and Shares ISA to reach a £2,027 monthly passive income?

John Choong has no position in any of the shares mentioned at the time of writing. 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.