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Some traders could view mining big Rio Tinto (LSE: RIO) extra as a dividend play than a progress share. That’s forgivable, given poor latest efficiency. The shares are up lower than 10% over 5 years. Now they’ve sprung into life.
Over the previous 12 months, the Rio Tinto share worth has climbed round 26%, most of which got here within the final three months. Is that this the opening salvo of an explosive restoration?
First, it’s price revisiting why Rio Tinto has struggled. The largest problem is its heavy reliance on iron ore, which usually generates nicely over half of group earnings. Costs have fallen sharply from post-pandemic highs as China’s property sector slumps, hitting demand, revenues, and earnings.
Rio Tinto restoration potential
China nonetheless faces critical challenges, however the outlook is a bit of brighter. Goldman Sachs lately upgraded the nation’s GDP progress forecast to 4.8% for 2026, citing stronger-than-expected exports and larger deal with superior manufacturing.
Rio has additionally needed to deal with post-pandemic provide chain disruption and excessive inflation, which has pushed up labour, vitality, and enter prices, whereas squeezing margins. Operational points have added to the stress. In Australia, cyclones and flooding hit iron ore output, whereas the board lower manufacturing on the Yarwun Alumina Refinery to increase its life.
In October, Rio mentioned it stays on observe to satisfy its 2025 manufacturing targets. Bauxite and copper manufacturing rose 9%, however iron ore output was flat. That combined image helps clarify why confidence has been gradual to return.
FTSE 100 dividend play
The steadiness sheet deserves shut consideration. Internet debt stood at roughly $14.6bn on the finish of June 2025, up sharply from round $5.5bn on the finish of 2024. That displays main funding exercise, together with the Arcadium lithium acquisition and elevated venture financing. Even so, Rio stays financially strong, with round $9bn of money and robust total liquidity.
The board cheered traders in December, by asserting plans to launch as much as $10bn of capital by price cuts and asset gross sales. Buyers appreciated that however those that anxious they might have missed the restoration shouldn’t be too alarmed. The valuation nonetheless seems to be cheap, with the price-to-earnings ratio at round 12, albeit up from eight or 9 for a lot of final yr.
Because the share worth has risen, the trailing dividend yield has eased, but it surely’s nonetheless a wholesome 5.1%. Nevertheless, Rio’s latest dividend observe file is scrappy. In 2021, it paid a bumper complete dividend of 793 US cents per share. It adopted that with cuts of 38%, 11.5%, and seven.6% over the next three years, shrinking the 2024 payout down to only 402 cents.
These shopping for at this time are betting that the latest rally marks the beginning of a extra sturdy restoration. The P/E suggests some worth stays, however quite a bit nonetheless relies on the worldwide economic system and China specifically.
I feel Rio Tinto is price contemplating for income-seekers who fancy some restoration potential on prime. Particularly for individuals who lack pure assets publicity. This can be a cyclical sector, so the most effective time to speculate is when sentiment is low. Regardless of the latest restoration, we’re nonetheless close to that time at this time. Buyers ought to take a long-term view, as ever.
