Owning Rio Tinto Ltd (ASX: RIO) shares has been a rewarding experience in recent years, thanks to the strength of the iron ore price and the size of the dividends.
Australia is known for its commodity sector, with an abundance of resources like iron ore, copper, gold, lithium, and more. Rio Tinto is able to give investors exposure to many of Australia's commodities.
When I think about all of the different ASX mining shares, Rio Tinto is my preferred option. I'm picking it over many other stocks, including BHP Group Ltd (ASX: BHP), Fortescue Ltd (ASX: FMG), South32 Ltd (ASX: S32), Pilbara Minerals Ltd (ASX: PLS), Northern Star Resources Ltd (ASX: NST) and many more.
There are a few reasons why I like Rio Tinto shares, which I'll get into below.
Image source: Getty Images
Diversified commodities
Rio Tinto is involved in several resources, which I think is very useful because of the diversification it provides. Commodity prices are volatile and unpredictable, but if earnings are generated across multiple commodities, then strength for one commodity can offset the pain of another commodity experiencing weakness.
Rio Tinto is involved in the mining of iron ore, bauxite, aluminium, copper, titanium dioxide, lithium, diamonds, salt, and other minerals.
Iron ore has been Rio Tinto's key earnings generator in the last few years. I'm excited by the company's planned growth in Africa with the huge Simandou iron ore project. However, broker UBS believes Rio Tinto will provide a Simandou update on 4 December, with a risk that there are delays in the construction of the project. So, I'd wait to buy until that update is released later this week in case there's bad news.
Defensive growth
I wouldn't describe iron ore as defensive because it's highly reliant on Chinese demand.
However, some of the other ASX mining share's commodities could deliver more consistent earnings and a more likely path to growth.
I'm mainly referring to copper. Rio Tinto says copper is essential to creating a sustainable, low-carbon world. For example, a 1MW wind turbine uses 3 tonnes of copper, and an electric vehicle uses four times as much copper as a traditional vehicle.
On its website, Rio Tinto says that global copper demand is set to grow by 1.5% to 2.5% per year thanks to electrification and increasing requirements for renewable energy.
Rio Tinto has several copper deposits and projects, including Oyu Tolgoi in Mongolia and Kennecott in the US, to take advantage of the growing copper demand.
I think copper can provide Rio Tinto with a reasonably defensive source of growth compared to other resources out there.
Large dividend yield
I believe Rio Tinto could continue to pay pleasing levels of dividend income for the foreseeable future without being significantly dependent on Australian iron ore.
Broker UBS predicts that Rio Tinto could pay an annual dividend per share of US$4.42 in the 2025 financial year. This translates into a forward grossed-up (including franking credits) dividend yield of 8.1% at the current Rio Tinto share price.
That looks like an appealing cash payout for shareholders, in my view.
