Does Rio Tinto really have an 8% dividend yield right now?

Is Rio Tinto's dividend yield too high?

Key points
  • Investors have enjoyed monstrous returns from Rio Tinto shares over the past two years
  • The miner doled out record dividends in 2021 and kept up the pace in 2022
  • But is Rio Tinto's dividend yield of over 8% too good to be true today?

Like most ASX 200 mining shares, Rio Tinto Limited (ASX: RIO) has delighted investors with record dividend payments over the past two years.

After doling out $5.66 in dividends per share in the COVID-ravaged 2020 (which was the second-highest level of dividend payments in Rio Tinto's history at the time after 2019), the company broke its own record in 2021. That year, Rio Tinto rained a whopping total of $12.77 in dividends per share on investors.

2022 wasn't quite as lucrative. But investors still enjoyed a total of $10.47 per share last year. That was made up of the March final dividend of $5.77, the March special dividend of 86 cents per share and the August interim dividend of $3.84.

These three dividend payments give Rio Tinto shares a trailing dividend yield of 8.25% on the current Rio Tinto share price of $126.95. Rio Tinto's dividend payments usually come fully franked too. That means that this dividend yield grosses up to an impressive 11.79% with the value of those full franking credits.

So does this mean investors can expect an 8.25% yield if they buy Rio Tinto shares today?

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.

Image source: Getty Images

Are Rio Tinto shares really offering an 8.25% dividend yield right now?

Well, a company's dividend yield always represents the past, not the future. It assumes that if investors bought Rio Tinto shares today, and the company pays out the same dividends in 2023 as it did in 2022, only then will investors actually get an 8.25% yield.

But a company is never under any obligation to maintain its dividends at a previous level. If iron ore prices collapse in 2023, Rio Tinto could decide to halve its dividends. Then, investors would be looking at a yield with a 4 at the front, rather than an 8.

So you should never buy a divided share based purely on what it paid out last year.

Earlier today, my Fool colleague James looked at what ASX broker Goldman Sachs is expecting from Rio Tinto shares in FY2023. Goldman has pencilled in dividends worth just $6.25 per share this financial year.

If Rio Tinto does hit that mark, it would give its shares a forward dividend yield of 4.92% on the current share price. That is still decent for an ASX dividend share. But it's not an 8.25% yield.

So if Goldman is right, Rio Tinto doesn't really have a dividend yield of 8.25% on the table right now. As always, we'll have to wait and see what Rio Tinto pulls out of its hat. But buying Rio Tinto shares today with an expectation of getting 8 cents back in yield for every dollar you spend could be misplaced.

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. 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 Scott Phillips.

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