When the FTSE 100 dipped below 7,000 last October I took my chance and invested some spare cash in Rio Tinto (LSE: RIO) shares.
I chose the mining giant for a number of reasons. First, the share price had dropped sharply in the preceding 18 months, from around 6,500p to less than 5,000p, and I’ve always loved a bargain.
I also thought that Rio Tinto would benefit as China reopened after its Covid lockdowns, and renewed its voracious appetite for metals and minerals. Finally, I was distracted by its dividend yield, which was the second biggest on the FTSE 100 at the time, paying income of more than 10%.
Cheap stock with a high yield
I knew it was a risky move, but a double-digit yield is hard to resist. It meant that I would double my money in seven-and-a-half years, even if the share price did not move at all. Yet I knew that high yields can quickly prove unsustainable, and so it proved.
I was punished for my naivety in February, when the Anglo-Australian miner slashed its dividend by more than half. I was disappointed but not exactly devastated, I was still getting income of 5.6% a year.
Rio Tinto acted after posting a 38% drop in annual profits, as the higher cost of labour and materials such as energy, explosives and equipment ate into margins. It was also badly hit by falling iron ore prices, an after-effect of those Chinese lockdowns.
I don’t regret buying Rio Tinto when I did, though. I’ve just checked my online portfolio, and the share price is actually up to 6.87% since my trade. I’m still ahead, although not as much as I was a month ago, when investors were feeling more confident than today. Over one year, it’s down 7.21%.
It’s the long term that matters
My holding is now worth £1,597, after deducting stamp duty and my £5.99 trading charge. So I’ve made £97 in share price growth, plus my first dividend of around £40 should be coming through shortly.
That’s neither here nor there in the wider scheme of things. I measure investment success over years, rather than months. If all goes to plan, I will hold Rio Tinto to retirement and beyond, while reinvesting my dividends to build up my stake.
Naturally, when buying individual stocks, there are no guarantees. Dividends can be cut at any time (as I’ve discovered). Share prices can fall and never recover. That’s why I’m building a portfolio of around 15 shares with a 10-year view.
This means I didn’t don’t need to worry about Rio Tinto’s recent dividend cut. It will be repaired fast enough. Today’s investors are already bagging a yield of 8%. As ever, there are risks. Future revenues may fall if the world slips into recession, as demand for key metals such as copper and iron ore will take a knock.
I would see that as a buying opportunity and will aim to increase my stake. I’m looking forward to 2024 and beyond, when inflation and interest rates should be falling, and cyclical stocks like this one will hopefully be on the up. With luck, Rio Tinto will give me a lot more share price growth and passive income in the years ahead.
The post I invested £1.5k in Rio Tinto shares six months ago. Here’s what they’re worth today appeared first on The Motley Fool UK.
Pound coins for sale — 51 pence?
This seems ridiculous, but we almost never see shares looking this cheap. Yet this recent ‘Best Buy Now’ has a price/book ratio of 0.51. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 51p they invest!
Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.
What’s more, it currently boasts a stellar dividend yield of around 8.5%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?
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More reading
- If I’d invested £500 in Rio Tinto shares 6 months ago, here’s how much I’d have now
- These 3 FTSE 100 shares look crazily mispriced
- Rio Tinto shares are a screaming buy. Here’s why
- Are Rio Tinto and Glencore shares no-brainer buys now?
- 2 FTSE 100 dividend shares! Which should I buy for passive income?
Harvey Jones has positions in Rio Tinto Group. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.