It's been 10 years since Rio Tinto Limited (ASX: RIO) suffered that horror of a year in 2008 when its share price dropped almost 80%.
Since then, its share price is up 140%, a stark reminder of why it's not a good idea to put all your money in one company, borrow money to buy shares, or to sell during a major market correction.
Times are different now for the ASX blue-chip miner and I think it's looking attractive for income focused investors.
Here are its key metrics:
- Dividend yield. Rio is currently trading at a fully franked dividend yield of 5.1% which is higher than the sector average of 3.3% and other miners such as BHP Billiton Limited (ASX: BHP) (yield of 4.3%), South32 Ltd (ASX: S32) (yield of 4.6%) and Newcrest Mining Limited (ASX: NCM) (yield of 0.8%). Fortescue Metals Group Limited (ASX: FMG) has a higher yield at 8.1% and its qualities as a lower cost producer of iron ore make it a stand out competitor, but I prefer Rio Tinto's broader range of underlying commodities.
- Dividend payout ratio. Rio Tinto had a 2017 dividend payout ratio of 60% i.e. 60% of its FY 2017 profits were paid out as a dividend which is quite reasonable.
- Dividend growth rate. Rio Tinto has an average 10-year dividend growth rate of 10.2% according to Morningstar which coincided with its rebound from the global financial crisis.
- Valuation. Rio Tinto has a PE ratio of 12 which is lower than the sector average of 14 and the market average of 16.
- Future prospects. Whilst Rio Tinto's former executives have been hit by ASIC civil suits, it appears to be on a new path under current CEO Jean-Sebastien Jacques who is expected to improve the level of governance. It remains susceptible to short term changes in Chinese and global demand for commodities, but this is less of a concern over the medium to long term. Advances in technology could also assist Rio Tinto, which has been using autonomous mining trucks, to improve operational efficiency.
Overall, while I like Rio Tinto as a dividend stock, it's not my number 1 pick on the ASX at the moment. Read our FREE report below to find out which company that I would rate as the top dividend pick for 2018.
