One old City saying warns: “Sell in May and go away, don’t come back until St Leger’s Day“. In other words, don’t buy shares during the warmer months, due to reduced trading levels, lower market liquidity, and wider pricing spreads. But as a bargain-hunter in the elite FTSE 100 index, I ignore this advice nowadays.
Though these words of wisdom may have worked well from the 17th to 20th centuries, I don’t take them to heart today. That’s largely because modern financial markets are dominated by massive institutional investors, huge hedge funds, and hyper-fast trading algorithms.
What’s more, my wife and I are expecting a tax-free lump sum within weeks. We would very much like to put this straight to work by buying more FTSE 100 stocks. Hence, I’m planning a big share-buying spree next month — despite it being near to the height of summer.
One FTSE 100 bargain I want to buy again
Though we have plans to buy stakes in several new companies, I’m not against buying more shares in existing holdings. Here’s one stock we already own that I’d like to buy more of shortly.
Rio Tinto rocks
My wife bought a stake in Anglo-Australian mega-miner Rio Tinto (LSE: RIO) close to a year ago at an all-in price of 5,204p a share. As I write, the stock trades at 5,105p, so we’re sitting on a paper loss of 1.9%.
Then again, we have no plans to sell our Rio Tinto shares, which we bought as a value/income/dividend play for the long term. Indeed, I’d like to buy even more shares in this £86.6bn mining behemoth soon.
Over one year, this widely held FTSE 100 stock has gained 1.7%, while it’s ahead 22.1% over five years. However, these figures exclude cash dividends — and Rio is one of the very biggest cash distributors in the entire London market.
At their current price, Rio shares trade on a price-to-earnings ratio of 8.6, for an earnings yield of 11.7%. But what really pushes me to buy more is their bumper dividend yield of 8%, covered 1.5 times by earnings. If it doesn’t cut this payout in 2023 (as it did in 2016 and 2022), then I’ll be delighted.
That said, the dividend payouts have followed a boom-and-bust pattern over the last five years, as my second table shows:
| Year ending | 2022 | 2021 | 2020 | 2019 | 2018 | Total |
| Total dividend | $4.92 | $10.40 | $5.57 | $4.43 | $5.50 | $30.82 |
Although the dividends have zigzagged up and down, they total almost $31 over the past five years. At today’s GBP/USD exchange rate, this comes to £24.20. That’s almost half (46.5%) of Rio’s current share price. Wow.
Of course, thanks to falling metals and commodity prices during 2023, this year is set to be tougher for Rio than 2022 was. Indeed, I fully expect it to report lower revenues, cash flow and earnings this year. Even so, we bought this dividend powerhouse for the long run — and I hope to own even more shares ASAP!
