Could the Rio Tinto Limited (ASX: RIO) share price count as a buy right now, with a large projected dividend yield for FY22?
Rio Tinto is one of the world's largest iron ore miners, with only the likes of BHP Group Ltd (ASX: BHP), Fortescue Metals Group Limited (ASX: FMG) and Brazil's Vale as major competitors.
The iron ore price helped make 2021 a very profitable year for the ASX mining share. But will 2022 be another good year for profit and dividends?
Dividend expectations
Each analyst has different expectations for what Rio Tinto may pay in 2022.
Using the Commsec forecast, the current Rio Tinto share price suggests a grossed-up dividend yield of 10.5% for FY22.
However, the broker Citi believes that Rio Tinto is going to pay an even bigger dividend in FY22. At today's valuation, the projected FY22 grossed-up dividend yield is 12.75%.
Is the Rio Tinto share price a buy?
Citi does currently rate Rio Tinto a buy. Aluminium is one factor for the broker.
Both the broker and company have noted that Rio Tinto is changing its Australian aluminium smelters to have lower carbon usage.
With the introduction of carbon pricing, Rio Tinto expects that new coal-powered smelting will be challenged as they will need to pay a carbon price. It is that thought that the development of the ELYSIS technology – net zero aluminium smelting which produces oxygen – could lead to 15% lower operating costs, it can be applied to existing smelters and obviously reduces emissions.
Citi thinks that aluminium is going to have a good year in 2022.
Another factor playing into the broker's thoughts on the Rio Tinto share price is the recent acquisition of the Rincon lithium project.
Lithium acquisition
Rio Tinto is buying the Argentine lithium project from Rincon Mining for $825 million.
The ASX mining company said that this acquisition demonstrates its commitment to build its battery minerals business and strengthen its portfolio for the global energy transition.
Rincon is a large, undeveloped lithium brine project in the heart of the lithium triangle in the Salta Province of Argentina. Management said that the project has a long life, is a scalable resource and could have one of the lowest carbon footprints in the industry.
Rio Tinto is prioritising projects and capital into commodities that support decarbonisation but can also make good returns for shareholders.
The ASX mining share thinks the market fundamentals for battery grade lithium carbonate are strong, with lithium demand forecast to grow by 25% to 35% per annum over the next decade with a significant supply demand deficit expected from the second half of this decade.
At the moment, Rio Tinto is also trying to get its European Jadar project approved, which is currently facing intense local scrutiny on environmental impact concerns.
Citi thinks that the outlook for lithium remains strong.
What is the Rio Tinto share price target?
Citi's price target on Rio Tinto is $115, which is around 10% higher than where it is today.
