Buy This Hugely Profitable 4.6% Dividend Paying Miner
With new cases of the coronavirus spiking in the US and worldwide.
With the already historic unemployment levels and job losses in recent months.
And with many Blue-Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest today. And this number grows smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital.
And this is a huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
In recent articles I’ve shown you several stocks to avoid investing in.
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Today, I want to show you why to Buy This Hugely Profitable 4.6% Dividend Paying Miner.
Rio Tinto is one of the worlds largest mining companies.
Its focus is on the extraction of iron ore. But it also mines aluminum, copper, diamonds, gold, and other minerals.
Its based in London England. It has a $103.3 billion market cap. And it pays a large 4.6% dividend… Which is reason #1 to consider buying its stock.
Rio Tinto’s 4.6% Dividend
Over the last decade Rio Tinto’s paid out a total of $19.93 per share in dividends.
At today’s count of 1.633 billion shares that’s equal to $32.55 billion paid out to shareholders in that time.
Plus, it raised its dividend 334.1% in the last decade from $0.88 per share in 2010 to $3.82 per share now.
These dividend payments help you earn cash if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
It can do this because it earns huge profits. Which is reason #2 to buy Rio Tinto to Depression Proof Your Portfolio.
Rio Tinto Earns Huge Profits
Over the last decade it earned an average operating income margin of 28.6% per year.
I look for anything above 10%.
Another way to see how profitable a company is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 12.9% per year on average.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above. If a company surpasses both thresholds it makes it a great operating business that is safe and valuable.
Rio Tinto’s margins on both important metrics are gigantic… This not only means it’s a great operating business. But that its one of the best and most consistently profitable in the world.
This already gives it a huge margin of safety… But these large profits also allow it to have low debt levels.
Rio Tinto Has Low Debt
It has $8.95 billion in cash compared to $43.66 billion in debt.
As a percentage of its balance sheet, total liabilities make up 51.03%.
Its debt makes up only 42.3% of its current market cap.
And its debt-to-equity ratio is 0.34.
These are all well below the minimum thresholds I look for when considering debt, cash, and balance sheet strength.
And this combined with its massive profits give a large margin of safety when considering buying Rio Tinto stock.
So far it looks like an exciting potential investment… But what about its valuation? Is it cheap enough to buy?
Rio Tinto IS Cheap
With the markets at or near all-time highs you’d expect a great looking stock like Rio Tinto to be selling at an enormous valuation.
But its not…
As of this writing its P/E is 19.1.
Its P/CF is 9.7.
Its forward P/E is 13.2.
And its enterprise value to operating income – EV/EBIT is 9.3.
On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.
And on EV/EBIT I look to buy stocks below 8.
This means Rio Tinto is cheap… Which gives it an even larger margin of safety in investing terminology.
When you invest in stocks that have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning it in the coming years.
The inverse of this is also true…
When you invest in a stock without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning it going forward.
With Rio Tinto being undervalued, it gives you enough margin of safety to buy right now.
Especially when considering its large dividend, huge profits, and low debt levels.
For these reasons I recommend you buy Rio Tinto stock to Depression Proof Your Portfolio.
If you’re looking for a solid, safe, stable, and enormously profitable investment to buy to Depression Proof Your Portfolio – consider investing in Rio Tinto.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.