Rio Tinto Limited (ASX: RIO) dropped 0.5% yesterday, bringing the falls for 2015 so far to 0.8%. The decline comes despite iron ore prices gaining ground over the past two weeks. In fact, since December 23, iron ore has rallied from a five-year low of US$66.84 to US$71.50 on Wednesday.
With iron ore being the largest segment of Rio's business, the gain in the price of iron ore provides a glimmer of hope for shareholders who have had to contend with a 14% fall in the share price over the course of 2014.
However, the pain felt by Rio's shareholders is nowhere near as bad as the falls experienced by peers BHP Billiton Limited (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG). The share prices of these two miners fell by 22% and 52% respectively in 2014.
Despite the larger falls experienced by BHP and Fortescue, arguably, Rio still looks to be the more appealing investment opportunity in 2015 with earnings forecast to bounce back in 2016 after touching a cyclical low this year. The dividend meanwhile is expected to continue to be increased each year to 2016.
If these forecasts (provided by Morningstar) prove accurate, then this implies that the stock is trading on an appealing looking forward price-to-earnings ratio and dividend yield of 8.6x and 5.6% respectively.
A word of warning though, the apparent steadying of the iron ore price could suggest that a floor may have been reached…it's hard to tell…that's why it could pay to build any position in Rio slowly over time.
