Looking to drill into Rio Tinto Ltd (ASX: RIO) shares for $10,000 a year in extra passive income?
You're not alone!
The S&P/ASX 200 Index (ASX: XJO) mining giant has a lengthy track record of paying two fully franked dividends a year. And those franking credits should continue to offer investors potential tax benefits, even under the recently announced Federal budget measures.
Now, with Rio Tinto shares having rocketed more than 50% over the past year, the stock's dividend yield has come down too.
But that doesn't make it unattractive.
We'll look at how many shares you'd need to buy for that welcome $10,000 annual passive income boost below.
But first a few important reminders.
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Trailing yields and forecast yields
First, when you're gauging a stock's passive income potential you can look at trailing yields or forecast yields.
Forecast yields represent analysts' best guesses at how much a company might pay out over the year or years ahead. But at the end of the day, these forecasts are just that. Guesses.
Trailing yields are based on the past 12 months of dividend payouts. Meaning future yields could be higher or lower depending on a range of company specific and macroeconomic factors.
For Rio Tinto shares, that includes the prevailing price of iron ore and copper, as well as weather conditions that could help or hinder mining operations.
Also bear in mind that, while we'll look solely at Rio Tinto here, a properly diversified passive income portfolio will contain a lot more than just one dividend stock.
While there's no magic number that fits everyone, 10 to 15 ASX dividend stocks is a good ballpark figure. Ideally these will operate in various sectors and locations. This will help reduce the risk of your income stream taking an outsized hit if any single stock or sector runs into a rough patch.
With that said…
Drilling into Rio Tinto shares for a $10,000 annual passive income
Rio Tinto paid a fully franked interim dividend of $2.22 a share on 25 September. The ASX 200 miner paid its final fully franked dividend of $3.671 a share on 16 April.
That works out to a full year dividend payout of $5.891 a share.
So, to aim for $10,000 a year in passive income (based on the trailing yield), you'd need to buy 1,698 Rio Tinto shares today.
How much would that cost?
Rio Tinto shares closed on Friday trading for $191.59 apiece, up more than 59% in 12 months.
To achieve your $10,000 annual passive income goal then, you'd need to invest $325,320 today.
Now, that's a lot to invest in one go. But that's okay. Investing is a long game. You can always invest smaller amounts on a regular basis, and you'll reach your income goal in good time.
Rio Tinto shares trade on a 3.1% fully franked trailing dividend yield.
