Though it’s been a tough 2022 so far for global stock markets, UK share prices have held up relatively well compared to other regions. For example, the blue-chip FTSE 100 index is down a mere 0.5% this calendar year. Also, it’s also gained 3.8% over the past 12 months. Meanwhile, the US S&P 500 index has lost 14.8% of its value since 31 December 2021. And over the past 12 months, it has declined by 7.7% (all figures exclude cash dividends).
FTSE 100 shares still look cheap to me
I know that I bang on about this a lot, but FTSE 100 shares (and a fair few FTSE 250 stocks) still look cheap to me at present. Many trade on lowly earnings multiples and also offer market-beating dividend yields. As a value investor, this is my happy hunting ground. Here is one cheap Footsie share that I already own, but would happily buy in August for its generous passive income and potential capital gains.
Rio Tinto slashes its dividend
Rio Tinto (Spanish for ‘red river’) is the world’s second-largest mining company. Its core products — including aluminium, copper, and iron ore — help fuel the world’s factories, especially in China. But the Anglo-Australian mega-miner’s shares have taken a beating since they peaked at nearly £63 in early March. Here’s how this FTSE 100 firm’s fundamentals stack up after steep price falls in June and July:
| Share price | 4,838.5p |
| 52-week high | 6,293.28p |
| 52-week low | 4,319.87p |
| 12-month change | -21.0% |
| Market value | £80.1bn |
| Price-to-earnings ratio | 5.3 |
| Earnings yield | 18.9% |
| Dividend yield | 12.1% |
| Dividend cover | 1.6 |
Rio Tinto’s stock dipped again on Wednesday, after it reported a 29.5% fall in underlying earnings in the first half of 2022. It also slashed its dividend payout to $4.3bn, less than half of the $9.1bn paid out for H1/2021. This follows steep falls in metals prices since early March.
By the way, the dividend yield shown above is a trailing (backward-looking) figure and therefore does not reflect the newly announced cut. But a cash yield of even half the current level — say 6%+ a year — would still look attractive to me as an income-seeking investor.
Right now, things don’t look too promising for this FTSE 100 super-heavyweight. Economic growth is slowing rapidly, driven down by red-hot inflation (soaring consumer prices), sky-high oil prices, and rising interest rates. There are also worries over a prolonged war for Ukraine and a possible global recession.
Nevertheless, my wife bought Rio Tinto shares in late June for our family portfolio, to hold for the long term. Even after the dividend reduction, I still see this as a solid business to own for dividend income and future capital gains. And that’s why I might buy more shares in August if the price continues to decline!