Rio Tinto share price: a dividend play in uncertain times?

The Rio Tinto share price is up 21% year-to-date, as a sharp market-wide pivot into commodities and defensive sectors has boosted the mining giant’s stock. With uncertainty seeming likely to linger in 2022, Rio Tinto’s movement and high dividend could prove a strong defensive pick.

If one word has dominated market reporting in 2022 it’s surely been ‘uncertainty’. Uncertain markets and uncertain outlooks are buzzwords in name only and have conspired to create a pessimistic mood this year. And with good reasons.

On 30 April an article in The Week pointed out that, with the S&P 500 down 13.8% year-to-date, the index had recorded its worst performance since World War II.

So, where should investors look in these uncertain times? Defensive plays that offer decent dividends to tide investors over could be an option as growth stocks flounder. In which case, Rio Tinto’s [RIO.L] share price could be a potential winner. Owning Rio Tinto’s stock offers a sizable dividend, even if its outlook is somewhat up in the air — the Financial Times reports that the stock has more than a few ‘hold’ ratings.

Yet, with commodities in the spotlight at the moment, equities dealing with materials could be poised to do well. Can the mining stock retain a strong market position in the near future?

What’s happening with Rio Tinto’s share price?

Shares in Rio Tinto are up 17.7% this year, closing Wednesday 1 June at 5,758p. Between 16 April and 12 May the stock experienced a steep selloff, going from 6,230p to 5,163p. However, since that point Rio Tinto’s share price has managed to recoup some of those losses. A recovery to the stock’s 52-week high of 6,343p would see a 10.1% upside on Wednesday’s close.

The stock also carries a forward price-to-earnings ratio of 5.87, suggesting Rio Tinto’s share price could be good value. 

Supply chain issues have affected production — notably in iron ore and copper — although Rio Tinto could benefit from the war in Ukraine driving metal prices up. Results continue to be strong for the miner. Profit after tax in 2021 came in at $21.1bn, more than doubling the previous year’s $9.8bn. Earnings per share came in at $13.21, up 77% on the previous year’s $6.04.

The miner also announced its highest ever dividend of $10.40 per share, including a 247 US cents per share special dividend, representing a 79% payout.

Where next?

Record profits and excellent shareholder payouts are obviously a good thing for any investor. Rio Tinto has been able to benefit from rising commodity prices and a strategy focused on commodities that support decarbonisation. Typically, miners provide a good hedge in inflationary environments.

Of course, the direction of commodity prices isn’t guaranteed. Then there’s Rio Tinto’s expansion plans, which could weigh on the balance sheet — the company is stumping up $2.7bn to increase its ownership of a Mongolian copper-gold mine. However, the miner is undoubtedly cash-rich and while the sums involved are large, they are unlikely to make a significant dent in the firm’s cash pile.

With this in mind, analysts are fairly optimistic on the stock’s outlook. According to 23 analysts polled by the Financial Times, Rio Tinto has a consensus ‘outperform’ rating and an average price target of 6,496.4p, representing a 12.8% upside on the 1 June closing price.