As a veteran value/income investor, I’m always looking out for dividend shares that offer market-beating cash yields. I collect this income and then decide whether to reinvest it into buying more shares or use this extra cash to offset my rapidly rising household bills.
Right now, the FTSE 100 index offers an estimated income yield of around 4.2% a year. Earlier, I found dozens of Footsie dividend shares with yields higher than this. Here is one of these top high-yielding stocks that I already own, but would gladly buy at current prices.
Rio Tinto is top of my dividend shares
Rio Tinto (LSE: RIO) is one of the world’s largest mining companies. Indeed, this Anglo-Australian mega-miner is a Goliath of the London market, with a current market value of £76.6bn. However, this share price has declined steeply since hitting a 52-week high of 6,343p on 3 March. Here’s how this Footsie share has performed over seven different timescales, based on the current share price of 4,660.5p:
| One day | -1.9% |
| Five days | -2.4% |
| One month | 0.3% |
| Six months | -13.2% |
| 2022 YTD | -5.2% |
| One year | -2.2% |
| Five years | 31.1% |
Though Rio’s share price has declined in 2022, it’s almost exactly in line with the wider FTSE 100’s fall this calendar year. But what drove me to buy Rio Tinto shares earlier this year was their massive dividend yield.
At the current share price, Rio stock trades on a lowly price-to-earnings ratio of 4.8 and a bumper earnings yield of 20.7%. What’s more, the group’s huge free cash flows allow it to funnel chunky dividends to its shareholders. As a result of the above price falls, Rio’s dividend yield has soared to 11.3% a year — one of the highest on the entire London Stock Exchange.
One reason for Rio’s declining value is that commodity prices, having soared in 2020-21, have pulled back steeply this year. One major contributing factor is the slowing Chinese economy, which has been hit hard by a property crisis and zero-Covid lockdowns. This has driven down the prices of key metals such as aluminium, copper, iron ore, and zinc — hardly ideal for big miners like Rio.
Also, demand for metals could suffer in 2022-23 if the global economy slides into recession. Soaring household bills and energy prices have hit Western consumers hard. Also, interest rates are rising worldwide and threaten to send housing markets into reverse. All of this spells bad news for commodity producers.
I’d buy more Rio Tinto shares today
My wife and I already own Rio Tinto stock as part of a new mini-portfolio of 10 dividend shares we built during the summer. However, I’d happily buy more Rio shares today, principally to collect their mouth-watering dividend income. But company dividends are not guaranteed, so they can be cut or cancelled at any time. Indeed, Rio cut its dividend in 2016, during the last commodity crisis.
As a long-term investor, my goal is to hold this and other dividend-generating stocks for, say, 10 years or more. Though I expect the Rio Tinto share price to be volatile over the coming decade, I’m hoping for outstanding returns from this dividend stock in future!