A dividend stock that caught my eye recently is Rio Tinto (LSE: RIO). Boosting my passive income is a crucial part of my investment portfolio. Let’s take a look at whether Rio Tinto shares could be a good addition to my holdings.
Mining and metals giant
As an introduction, Rio Tinto is a UK-based mining giant with a global footprint and an excellent reputation. In fact, it is one of the largest mining businesses in the world. It mines aluminium, copper, gold, diamond, iron, and lead.
Before I dive into Rio’s investment viability and whether it could be a good dividend stock for me, let’s take a look at its share price activity recently. As I write, the shares are trading for 5,000p. At this time last year, they were trading for 4,800p, which is a 4% increase over a 12-month period.
Cyclical but potentially lucrative
Generally speaking, commodity stocks are solid performers. This is due to the rising demand for commodities, especially metals, which play a huge part in the technology and infrastructure boom throughout the world. This means that larger players like Rio should experience growth in the coming years. In turn, this should boost investor returns.
It is worth noting that many commodity stocks have faltered in recent months. This is because their performance is closely linked to the economic outlook. With soaring inflation and rising interest rates throughout the world, Rio has seen its performance suffer a little bit. This is a risk I must be wary of but one I view as a shorter-term issue. To elaborate, Rio’s most recent half-year results showed that profit and EBITDA both fell compared to the same period last year.
Moving onto Rio’s bullish traits, the shares look good value for money with a price-to-earnings ratio of just 12. In addition to this, the dividend yield currently stands at just over 6%. The payout looks like it could be consistent too, covered by 1.7 earnings. As a dividend stock option, this is enticing for me.
Another risk for Rio’s progress and investment viability is the fact that commodities are cyclical. The demand and price is linked to economic conditions throughout the world. This means that there could be some volatility ahead, and volatility is something not all investors are looking for, no matter how good the returns may be.
A dividend stock I like
To summarize, Rio has a great position in the commodities market, and I believe that it can translate this, as well as rising long-term demand, into future earnings. These future earnings should then turn into investor returns.
I am wary of the more general risks that Rio faces, but I am not averse to some risk and volatility in my portfolio through the stocks that I decide to buy. My mantra is to buy and hold stocks for the long term — therefore shorter-term issues don’t worry me too much.
I believe Rio Tinto is a great dividend stock for me to buy and it will likely provide me with consistent returns for years to come. With that in mind, I would buy some shares if I had the spare cash to do so.
