Rio Tinto (LSE: RIO) is one of the highest-yielding stocks in the FTSE 100 index. Last year, the mining giant paid out total dividends of $10.40 per share, which equates to a trailing yield of about 18.2% at the current share price. Here, I’m going to look at the Rio Tinto dividend forecast for 2022 and 2023. I’ll also discuss whether I’d buy this income stock for my portfolio today.
Rio Tinto dividend forecasts
At present, analysts expect Rio Tinto to continue paying big dividends this year and next. However, the payout is not expected to be as large as the one last year (which included some ‘special’ dividends).
Currently, the dividend forecast for 2022 is $7.22 per share. Meanwhile, the estimate for 2023 is $5.65 per share. At the current share price and exchange rate, these projected payouts translate to yields of 12.6% and 9.9% respectively. These yields are obviously still massive, even if they’re below the trailing yield of 18.4%.
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A word of warning though – dividend forecasts can be way off the mark at times. So, there’s no guarantee that Rio will pay these kinds of distributions. And I’ll point out that dividend forecasts for Rio tend to fluctuate more than the forecasts of some other popular FTSE 100 income stocks.
When I last covered Rio in May, for example, analysts were expecting dividends of $8.83 per share for 2022. Since then, the forecast has fallen by 18%. It may continue to fall further depending on what happens in the commodity markets.
Would I buy Rio Tinto shares for income today?
As for whether I’d buy Rio Tinto shares for income, I don’t see them as a good fit for my portfolio.
Sure, the yield looks attractive right now. And the valuation is quite attractive too. Currently, the stock has a forward-looking P/E ratio of just 5.5 – well below the average FTSE 100 P/E.
The thing is though, Rio Tinto is a highly ‘cyclical’ company and as a result its share price is extremely volatile. This is illustrated by the fact that since early June, the stock has fallen from above £60 to near £48.
This is not what I want from an income stock. Because share price losses could potentially wipe out my gains from dividend income. If I had bought it at £60 in early June, for example, I’d now be sitting on a near-20% loss. So, while I may be set to pick up some big dividends, I could end up losing money overall.
I prefer income stocks that are a little more stable, such as Unilever and Diageo. These kinds of stocks are more ‘defensive’ in nature and less likely to experience massive share price swings.
Another issue with Rio is that it has very little control of its revenues and earnings. If commodity prices were to plummet, its revenues and profits would most likely plummet too. That’s not ideal from an income-investing perspective. I want companies that are in charge of their own destiny and can raise their dividends steadily over time as sales and profits rise.
So, I’m happy to give Rio Tinto shares a miss. The dividend forecast is attractive, however, all things considered, I think there are better income stocks out there for me.
