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Ordinary Idiot readers will know that I’m one thing of a loud cheerleader for worth shares. Particularly, I like to seek out low cost FTSE 100 shares that supply market-beating money dividends. By reinvesting these common dividends, I can cut back my portfolio’s ongoing volatility — or I can use these common payouts to offset my skyrocketing payments.
Prime of the FTSE 100 shares?
2022 was a brutal 12 months for buyers worldwide, because of plunging inventory and bond costs. What’s extra, pundits anticipate recessions within the US, UK and Europe this 12 months. However how broad, deep and lengthy these financial contractions will likely be stays to be seen. What if we by some means dodge a significant stoop?
It’s usually stated that inventory markets ‘climb a wall of fear’, so to be a long-term investor requires positivity in addition to endurance. That’s why I’m looking forward to the longer term prospects of FTSE 100 Anglo-Australian mega-miner Rio Tinto (LSE: RIO).
A world rebound would reinvigorate Rio
As one of many world’s largest mining firms, Rio Tinto has a market worth of £104.2bn — making it an actual Footsie super-heavyweight. It’s additionally one of many world’s largest suppliers of aluminium, copper, iron ore and zinc.
These base metals are in large demand throughout increase occasions, however metallic costs are inclined to stoop throughout downturns. That why even the biggest mining companies generally reduce their dividends — as Rio final did in 2016.
Then once more, former international progress famous person China lately deserted its zero-Covid lockdowns, in addition to bettering liquidity for its ailing property market. Therefore, because the ‘world’s workshop’ opens up once more, commodity demand might take off later this 12 months.
Clearly, I might equally be incorrect, with slowing international progress hammering mining shares. All the identical, Rio’s shares look low cost to me. On the present worth of 6,213p, they commerce on a price-to-earnings ratio of seven.1 and an earnings yield of 14.1%. That’s about half as ‘costly’ as the broader FTSE 100.
What’s extra, Rio’s bumper dividend yield is 8.5% a 12 months — greater than twice the Footsie’s. And this money payout is roofed 1.7 occasions by earnings, giving it a strong basis for future progress. That’s why I already personal this mega-cap share — and I’d fortunately purchase extra as we speak, if I had the spare money.
Warning: Rio is a unstable inventory
Though I’m very bullish about Rio Tinto’s future revenues, earnings, money circulation and dividends, I do know all too properly how unstable its shares are.
Based mostly on the present share worth of 6,213p, this inventory is definitely 11.3% forward over the previous 12 months. However it’s moved in a variety over the previous 52 weeks, from a excessive of 6,343p on 3 March to a low of 4,424.5p on 31 October. We purchased this inventory in late June at a worth of 5,203.7p, simply earlier than it began whipsawing up and down earlier than rebounding arduous since Halloween.
In abstract, I wouldn’t describe it as one for the faint-hearted. However its juicy — but doubtlessly sustainable — money dividend is an enormous attraction for me as a Rio Tinto shareholder.