Rio Tinto Ltd (ASX: RIO) shares are a popular option for investors in the mining sector.
Unfortunately, though, the past 12 months haven't been overly positive for owners of its shares.
During this time, the company's shares have lost a touch over 1% of their value. This compares unfavourably to a gain of over 9% for the ASX 200 index over the same period.
Could this underperformance have created a buying opportunity for investors? Let's take a look at what a $10,000 investment could turn into if you were to buy its shares today.
$10,000 invested in Rio Tinto shares
At present, the mining giant's shares are trading at $113.99. This means that with a $10,000 investment (plus an extra $31.12), you would end up owning 88 Rio Tinto units.
What could they be worth in a year?
According to a note out of Goldman Sachs, its analysts believe those Rio Tinto shares could be worth a lot more than their current valuation.
In response to the miner's quarterly update last week, the broker retained its buy rating with a slightly trimmed price target of $136.10.
This means that if Rio Tinto's shares were to rise to that level, your 88 units would have a market value of $11,976.80. That's almost $2,000 more than what you paid for them.
Don't forget the dividends
But the returns won't stop there. Rio Tinto is one of the biggest dividend payers on the Australian share market.
Goldman is forecasting fully franked dividends per share of US$4.30 (A$6.43) in FY 2024 and then US$4.40 (A$6.58) in FY 2025.
If we were to imagine that this will mean dividends of US$4.35 US cents (A$6.50) per share are paid out to shareholders over the next 12 months (the FY 2024 final dividend and FY 2025 interim dividend), this will generate income of A$572.
This brings the total value of your investment to $12,548.80. That equates to a total return of approximately 25%, which is over double the historic average market return.
Commenting on its bullish view, Goldman Sachs said:
We continue to rate RIO a Buy based on: 1. Compelling relative valuation: trading at c. ~0.8x NAV (A$144.0/sh) vs. peers (BHP ~0.9x NAV and FMG ~1.3x NAV) and c. ~5.5x NTM EBITDA at GSe base case, below the historical average of ~6-7x. 2. Attractive FCF and dividend yield + GS bullish copper and aluminium (~30% of EBITDA increasing to 45-50% by 2026): FCF/dividend yield in 2024E (c. 6%/6% yield) & 2025E (c. 7%/6% yield) driven by our bullish view on aluminium and copper in 2H24 (~30% of group EBITDA in 2024 increasing to 45-50% by 2026) and constructive view on iron ore.
