American satirist Mark Twain once remarked, “A mine is a hole in the ground with a liar at the top”. While this adage may apply to lesser firms, FTSE 100 mining giant Rio Tinto (LSE: RIO) is one major exception to the rule.
Rio Tinto is a FTSE 100 beast
As a value investor, I’m always on the hunt for shares in large (ideally, FTSE 100), stable, resilient, well-managed, and profitable companies. For me, Anglo-Australian multinational miner Rio Tinto – an absolute beast valued at almost £80bn – almost perfectly fits the bill.
This FTSE 100 firm’s big deal is its ability to pay out enormous cash dividends to its shareholders. In its half-year report released on Wednesday, Rio revealed that it would pay out another $2.5bn (£1.9bn) in cash to shareholders, for an annual total of £3.65bn. That’s more than half (53%) of the mining giant’s earnings.
Rio revealed underlying profits were down 4% to $4.75bn in the first half of 2020, ahead of expectations. This allowed the FTSE 100 firm to declare an interim dividend of $1.55 per share. Combined with its final dividend for 2019, Rio paid out an incredible $4.8bn in cash to its happy shareholders. This boosts the global giant to #4 in the list of biggest FTSE 100 dividend-payers.
As for size, you don’t get much bigger than Rio, whose market value at the current share price of £45.92 is a whopping £79.1bn. This makes the miner one of the FTSE 100’s super-heavyweights.
This FTSE 100 share is getting cheaper
At £45.92, Rio shares have dipped 83.5p (1.8%) today, despite unveiling upbeat results two days ago. However, the FTSE 100 has had a weak week, falling 170 points (2.8%) over the past five days.
Then again, Rio shares have easily beaten the wider FTSE 100 during the Covid-19 crisis. Over the past 12 months, Rio’s share price has declined a mere 1.1%, versus a slump of 22% for the FTSE 100.
Rio shares aren’t expensive and pay big dividends
On 21 July, Rio shares almost hit £50, so they have slipped 8% in the past 10 days. At the other end of their range, shares in this FTSE stalwart dived to £29.54 on 23 March.
During the depths of the market meltdown, Rio shares were clearly a howling bargain at under £30. However, I think they remain inexpensive today and proffer ownership of one of the biggest cash torrents in the FTSE 100.
After slipping back from their recent high, Rio shares trade on a price-to-earnings ratio of 13.8, which is not expensive when measured against the wider market. What’s more, Rio is likely to see an earnings boost from rising iron-ore prices, which recently topped $110 a tonne.
For me, Rio’s main attraction is its ability to churn out oodles of cash to shareholders, like an ATM on steroids! Its current dividend yield of nearly 6.4% is very tempting, which is why I would buy and hold its shares today for their generous income.