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Here’s why the Rio Tinto (ASX:RIO) share price jumped 9% to a record high today

man jumps up a chart, indicating share price going up on the ASX bank dividend
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It certainly was a stunning day of trade for the Rio Tinto Limited (ASX: RIO) share price on Thursday.

The mining giant’s shares stormed as much as 9% higher to hit a record high of $126.18 before ending the day 8.5% higher at $125.66.

Also hitting new highs today were its rivals BHP Group Ltd (ASX: BHP) and Fortescue Metals Group Limited (ASX: FMG).

Why did the Rio Tinto share price rocket higher?

Investors were fighting to buy the company’s shares on Thursday after the iron ore price continued its ascent following positive news out of the US.

The steel making ingredient and other commodities climbed higher after the Democrats won the Georgia Senate run-off. This effectively hands control of the Senate to the Democrats, paving the way for further stimulus to boost economic growth in the United States.

This in turn should underpin demand for many commodities and support the high prices that many are commanding.

How is the iron ore price performing?

The iron ore price rose a further 80 US cents or 0.5% overnight to hit US$167.95 a tonne. This bodes very well for Rio Tinto and its shareholders in FY 2021.

The mining giant is targeting Pilbara iron ore unit costs of US$14 to US$15 per tonne. This means it is operating with a margin of over US$150 a tonne at present.

And given the strength of its balance sheet, the sizeable free cash flow it is generating is likely to be returned to shareholders through dividends.

What dividend will Rio Tinto pay?

According to a recent note out of Macquarie, its analysts are expecting the company to pay shareholders a fully franked ~$8.84 per share dividend in FY 2021.

Based on the current Rio Tinto share price, this will mean a very generous 7% dividend yield over the next 12 months.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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