Can Rio Tinto plc Help You To Retire Rich?

Dreaming of wealth in retirement? Here’s how Rio Tinto plc (LON: RIO) could help you get there.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Rio Tinto

With the iron ore price tumbling to a five year low, it’s been a challenging period for Rio Tinto (LSE: RIO) (NYSE: RIO.US). Indeed, shares in the iron ore-focused mining company have fallen by 12% during the course of 2014, which is well behind the also disappointing performance of the FTSE 100, which is down 5.5% year-to-date.

However, the long term future of Rio Tinto appears to be very sound and, more importantly, it could help you to retire rich. Here’s how.

An Improved Company

A key consequence of the low iron ore price has been a change in Rio Tinto’s strategy. Indeed, the company has responded positively to a challenging period by cutting costs, becoming more efficient and positioning itself more pragmatically for the long run. For example, Rio Tinto has mothballed several major projects which, thus far, seems to have been the right decision, and now seems to have an even better grip on cost management.

Growth Potential

Clearly, there is only so much Rio Tinto can do to improve its business. For it to achieve long term growth it needs demand to pick up sufficiently so that it can command a higher price for the iron ore that it mines and, on this front, there could be a bright future on offer.

Indeed, while Chinese demand is perhaps unlikely to return to previous high levels as a result of it transitioning towards a consumer-led, rather than capital expenditure-led, economy, global demand as a whole should remain robust over the medium to long term. For example, emerging markets continue to grow at a considerable pace and developed markets are also returning to pre-crisis growth levels (Europe aside), so demand for commodities may have reached a low ebb.

Valuation

Understandably, Rio Tinto’s share price continues to offer great value due to the challenges the company has faced in recent years. However, the scale of value on offer is quite surprising. For example, Rio Tinto currently trades on a price to earnings (P/E) ratio of just 9.5 (versus 13 for the FTSE 100) and has a well-covered yield of 4.4% (versus 3.5% for the FTSE 100).

Both of these figures show that Rio Tinto offers superb value for money and, while the present time is undoubtedly proving to be challenging, it is in great shape to benefit from an uptick in demand for iron ore over the medium to long term. As a result, Rio Tinto could help you retire rich.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »

Investing Articles

Up 40%, but experts forecast the easyJet share price could soon hit 664p! Time to buy?

The easyJet share price has been flying lately and stock analysts are predicting more fun to come. But there's only…

Read more »

Storytelling image of a multiethnic senior couple in love - Elderly married couple dating outdoors, love emotions and feelings
Investing Articles

Worried about tax raids? Here’s how I’m targeting a £44,526 passive income with shares

Investing in a Self-Invested Personal Pension (SIPP) or Individual Savings Account (ISA) can supercharge one's passive income, says Royston Wild.

Read more »