A FTSE 100 incumbent from my ‘best shares to buy now list’ is Rio Tinto (LSE:RIO). Rio Tinto is a leading global mining group that focuses on finding, mining, and processing the Earth’s mineral resources. RIO’s diversified mining operations make it a behemoth of a business. It sells iron ore, copper, diamonds, gold, and uranium across the globe.
Best shares to buy now dividend champion
On my best stocks to buy now list, there is a section for shares to make me a passive income. 2020 was a year to forget for investors aiming to make a passive income from dividends. Back in 2019, dividends paid out by UK-listed shares totalled over £100bn. Thanks to Covid-19, this figure was slashed by approximately half in 2020.
RIO is a dividend king in my eyes. For example, for 2020 it is expected to pay out in excess of £5bn. It’s dividend yield is a juicy 5%, which is 2% higher than the FTSE 100 yield of 3%. It must be noted that RIO’s dividend payout has fluctuated year to year but there has historically always been a payout.
RIO is a commodity producer which brings its own risks. In simple terms, this means its performance and financials are subject to the boom-bust cycle. A boom-bust cycle is a series of events in which a rapid increase in business activity in the economy is followed by an equally rapid decrease. So good times are usually really good for the company, and bad times are really bad.Â
FTSE 100 growth opportunity
As I write, RIO’s stock trades around 5,900p per share which values the group at just over £100bn. At this level, RIO trades on a price-to-earnings ratio of close to 18. Although the current price could be considered expensive, I believe there is potential for growth.
In the past year, RIO’s share price has grown approximately 42%. I would be hard pressed to find many other FTSE 100 firm’s that have enjoyed a similar bounce during the downturn. Looking further back over the past five years, RIO’s share price has increased over 200%. Looking through my best shares to buy now list, I am unable to find many companies with RIO’s size, dividend yield, and growth potential that have experienced such a rise.
Risk and reward
As with any share there are risks involved. Firstly, I do not solely rely on past performance alone. Furthermore as I mentioned earlier, shares like RIO are cyclical and will profit when the world needs metals and minerals. When there is a downturn, it will be affected. An example of this is iron ore, which is used to make steel. Countries require steel for building purposes, especially developing countries. Iron ore prices fell sharply between 2011 to 2016. It has since risen and this rise means I would describe iron ore as being in the boom phase of the boom-bust cycle.
From a reward perspective, I am tempted to buy RIO shares from my best shares to buy now list. I believe the world will come out of Covid-19 lockdowns later this year and RIO could benefit from huge demand. As well as RIO, here is another FTSE 100 share I really like right now.