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Habitual Fool readers will know that I am a loud cheerleader for value stocks. Mainly, I love bargain hunting FTSE 100 stocks that offer market-beating cash dividends. By reinvesting these regular dividends, I can reduce the volatility of my portfolio – or I can use these regular payments to offset my rising bills.
Top FTSE 100 stocks?
2022 is a brutal year for investors around the world, as stock and bond prices plummet. What’s more, experts expect a recession in the US, UK and Europe this year. But how broad, deep and how long this economic contraction will remain remains to be seen. What if we avoid the Great Depression?
It is often said that the stock market ‘hits the wall of worry’, so being a long-term investor requires positivity and patience. That is why I look forward to the future prospects of the FTSE 100 Anglo-Australian mega-miner Rio Tinto (LSE: RIO).
A global rebound will reinvigorate Rio
As one of the world’s biggest mining companies, Rio Tinto has a market value of £104.2bn – making Footsie a super heavyweight. It is also one of the world’s largest suppliers of aluminum, copper, iron ore and zinc.
These base metals are in high demand during boom times, but metal prices tend to fall during downturns. For this reason, even the largest mining companies sometimes cut their dividends – as Rio did in 2016.
Then again, former global growth superstar China recently abandoned its zero-Covid lockdown, also adding liquidity to the ailing property market. Therefore, when the ‘workshop of the world’ reopens, the demand for commodities may stop at the end of this year.
Obviously, I could be wrong, with the slowdown in global growth affecting mining stocks. Also, Rio stock looks cheap to me. At the current price of 6,213p, they trade on a price-to-earnings ratio of 7.1 and yield 14.1%. About half as ‘expensive’ as the wider FTSE 100.
What’s more, Rio’s bumper dividend payout is 8.5% per annum – more than double Footsie’s. And this cash payout is guaranteed 1.7 times by earnings, providing a solid foundation for future growth. That’s why I already own these mega-cap stocks – and I’d love to buy more today, if I had the spare cash.
Warning: Rio is a volatile stock
Although I am very confident about Rio Tinto’s future profits, earnings, cash flow and dividends, I am well aware of how volatile the stock is.
Based on the current share price of 6,213p, this stock is actually 11.3% ahead over the past 12 months. But it has moved in a wide range over the past 52 weeks, from a high of 6,343p on March 3 to a low of 4,424.5p on October 31. We bought this stock at the end of June at a price of 5,203.7p, just before it started whipsawing up and down before rebounding hard since Halloween.
In summary, I would not describe it as one for Mesem-ati. But the juicy – but potentially sustainable – cash dividend is a big draw for me as a Rio Tinto shareholder.
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