Rio Tinto Limited (ASX: RIO) is one of the largest ASX shares out there. Should dividend investors love Rio Tinto?
Why is Rio Tinto an interesting option for dividends?
The obvious answer is that Rio Tinto pays out a good amount of dividends each year.
Using the last twelve months of dividends, Rio Tinto has a fully franked dividend yield of 4.9%. That’s a solid yield in this environment where interest rates are so low.
The Rio Tinto dividend is now much higher than it was in 2016, 2017 and 2018 with the iron ore price performing strongly thanks to demand from China.
What did Rio Tinto recently report?
The Rio Tinto half-year result wasn’t quite as strong as 2019’s half year result with operating cashflow down 12% and underlying profit/earnings per share (EPS) down by 3%.
But for income investors it was decent, with a 3% increase of the ordinary dividend in US dollar terms.
The latest quarterly production showed a slight reduction. The company reported that its iron ore production (compared to FY19 Q3) fell 1% to 86.4Mt and shipments dropped 5% to 82.1Mt.
However, perhaps the biggest problem that Rio Tinto currently faces is relates to the fact it destroyed a cultural heritage site, the Juukan rockshelters in May 2020. That cost the CEO, J-S Jacques, his job.
Rio Tinto chairman Simon Thompson said: “What happened at Juukan was wrong and we are determined to ensure that the destruction of a heritage site of such exceptional archaeological and cultural significance never occurs again at a Rio Tinto operation. We are also determined to regain the trust of the Puutu Kunti Kurrama and Pinikura people and other Traditional Owners.
“We have listened to our stakeholders’ concerns that a lack of individual accountability undermines the group’s ability to rebuild that trust and to move forward to implement the changes identified in the board review.”
So where to from here for income investors?
Rio Tinto is in a strong economic place at the moment with the iron ore price and the level of demand. But you can’t expect that to last forever. Commodities usually go through cycles of strength and weakness. I think it’s best to buy commodity businesses during weak points, not strong points, of the cycle.
So it may be best to wait for a better time to buy. But there are other large ASX dividend shares that could be better ideas such as Brickworks Limited (ASX: BKW) and Magellan Financial Group Ltd (ASX: MFG) for long term income.
