When it comes to dividends, Rio Tinto Ltd (ASX: RIO) shares are a popular option for investors.
And it isn't hard to see why.
Every year, the mining giant shares a decent portion of its earnings with shareholders in the form of dividends. This has led to tens of billions of dollars being returned shareholders in recent years.
The good news for investors is that Goldman Sachs is forecasting some big dividend payments in the years to come.
It expects fully franked dividends per share of US$4.23 (A$6.35) in FY 2023 and then US$5.46 (A$8.20) in FY 2024. Based on the latest Rio Tinto share price of $114.73, this will mean yields of 5.5% and 7.15%, respectively.
In light of the above, investors may be wondering what it would take to generate monthly passive income of $500 from Rio Tinto's shares. Let's take a look.
How to make $500 of monthly income from Rio Tinto shares
Firstly, like most ASX shares, Rio Tinto shares don't pay monthly dividends to shareholders.
Instead, the miner pays an interim dividend in September and a final dividend in April. So, investors are going to have to be disciplined and take their bi-annual dividends and redistribute them into monthly instalments.
Let's get started. $500 of monthly income is the equivalent of $6,000 per year.
Based on Goldman Sachs' estimates above, in order to generate $6,000 in dividends, you would need to own approximately 945 Rio Tinto shares. This is the equivalent of an investment of $108,420.
What about future income?
The good news is that if Goldman is on the money with its estimates, your pay check would rise to approximately $646 per month or $7750 per year in FY 2024 thanks to a dividend increase.
Another positive is that the broker believes that Rio Tinto shares are undervalued at the current level. It has a buy rating and $131.70 price target on them.
If it were to rise to that level, your 945 shares would have a market value of almost $125,000. That's over $16,000 greater than your original investment.
All in all, this mining giant could be a top option for income investors to consider thanks to the combination of big dividends and bigger potential capital gains.
