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Kick Off: Rio Tinto Limited v BHP Billiton Limited

There are plenty of contenders for the greatest ASX rivalry, but one still stands out like no other…

In today’s Motley Fool ASX World Cup Round 1 blockbuster, iron ore giants Rio Tinto Limited (ASX: RIO) and BHP Billiton Limited (ASX: BHP) will once again go head-to-head to write yet another chapter in their fierce history.

After a decade of absolute market dominance, the pair have faced their recent challenges of economic headwinds causing investor confidence to dwindle. But as two of the largest companies listed on the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), this match-up is always bound to attract plenty of intrigue…

Here’s how the pair line-up

Rio Tinto Limited BHP Billiton Limited
ASX:RIO ASX:BHP
Recent Price $57.48 $35.28
Market Capitalisation $25.6 billion $114.7 billion
Dividend Yield 3.8% 3.6%
P/E ratio 8.5 12.6
Price-book ratio 2.1 2.5

Rio Tinto Limited

By three of the measures presented in the table above, Rio Tinto appears to be the better buy today. It scores an early goal with its slightly higher dividend yield as well as its lower P/E ratio and Price-book ratio scores, indicating that more value could be realised from tipping the underdog in this colossal match.

Despite its early lead however, the company has come into this game with a weaker defensive structure than its larger rival BHP Billiton. Its iron ore operations have taken a big hit in recent months with the commodity’s price down more than 30% since the beginning of the year! In fact, it sank as low as US$91.50 a tonne overnight which could really hurt the miner’s margins.

While the company relies heavily on the steelmaking commodity for its overall earnings, this line-up will start to look shaky and the defence could well give up a few easy goals… This could end up being an ugly match for fans of Rio Tinto…

BHP Billiton Limited

BHP Billiton gave up an easy goal early on. Investors are already willing to pay a higher premium for the company’s earnings and its dividend yield isn’t quite as strong as that of Rio Tinto’s.

However, Andrew Mackenzie’s team took the lead late in the match with two goals, exploiting Rio Tinto’s weak defences. While the miner has also suffered at the hands of the falling iron ore price, it maintains far more diversified operations, spanning mainly across coal, copper and petroleum as well as iron ore, leaving it less exposed to the harsh conditions.

So far this year, its shares haven’t been anywhere near as volatile as Rio Tinto’s and it seems as though its followers have greater confidence for the long term too. Just how far could this company get in this tournament…?

Full-time

Although Rio Tinto could certainly win the next match should iron ore make a strong recovery, BHP Billiton is simply far stronger in these tough conditions and won the match convincingly with a 2-1 score. BHP Billiton could be one to watch over this tournament, although it could certainly meet its match against some of the market’s growth stocks…

One stock I think could easily overpower BHP Billiton in the arena has recently been dubbed "The Motley Fool's #1 dividend stock for 2014". It boasts a far greater fully franked dividend yield and has enormous growth potential. Better yet, it's yours absolutely free! Simply click here for your FREE copy right now!

Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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