I use Google Alerts on “high dividend stocks” to see what is being published online on the subject. Insider Monkey’s article got my attention because I hadn’t done a first look on any of his “5 High-growth, High Dividend Stocks”. The five stocks are Rio Tinto (RIO), Enterprise Product Partners (EPD), Siemens AG (SI), Taiwan Semiconductor (TSM), and British Sky Broadcasting Group PLC (BSY)
http://www.insidermonkey.com/blog/5-high-growth-high-dividend-stocks-20007/
I write a first look at article on each of these. Rio Tinto PLC (RIO) is the first one up.
Rio Tinto (RIO)
Price: $47.46
Shares: 1.85 billion
Market capitalization: $87.9 billion
What does the company do to earn profits? Rio Tinto searches for and extracts a variety of minerals worldwide, with the heaviest concentrations in North America and Australia. Major products include aluminum, copper, diamonds, energy products, gold, industrial minerals, and iron ore. The 1995 merger of RTZ and CRA, via a dual-listed structure, created the present-day company. The two operate as a single business entity. Shareholders in each company have equivalent economic and voting rights in Rio as a whole.
Morningstar’s take: Rio Tinto is a top-tier global miner along with BHP Billiton BHP, Brazil's Vale VALE, and U.K.-based Anglo American AAUKY. A world-class asset base and capable management make Rio Tinto one of the few miners to earn more than its cost of capital through the commodity cycle. Geographic and product diversification give the company relatively stable cash flows and lower operating risk than many of its mining peers. Most revenue comes from the relative safe havens of Australia, North America, and Europe, though operations span six continents.
Bonds outstanding: none
Times bond interest earned: not applicable
Preferred stock: none.
DIVIDEND RECORD Rio Tinto pays a semi-annual dividend. The dividend payment amounts vary and are not predictable. Here is the 5 year dividend history chart:
Dividend: $1.65 (annual dividend from FEB 2012 $0.91 and AUG 2012 $0.74)
Dividend yield: 3.4% ($1.65 annual dividend / $47.46 share price)
Dividend payout ratio: 73% using earning power of $2.24 per share from Google Finance –OR- 42% using average adjusted EPS of $3.91
EARNING POWER – $3.91 @ 1.85 billion shares
(Earnings adjusted for changes in capitalization)
Year | EPS | Net Income | Shares | Adjusted EPS |
2006 | $5.56 | $7,438 M | 1,339 M | $4.02 |
2007 | $5.66 | $7,312 M | 1,291 M | $3.95 |
2008 | $2.85 | $3,676 M | 1,334 M | $1.99 |
2009 | $2.75 | $4,872 M | 1,770 M | $2.63 |
2010 | $7.26 | $14,324 M | 1,973 M | $7.74 |
2011 | $3.01 | $5,826 M | 1,936 M | $3.15 |
2012 | ? | ? | 1,850 M | ? |
Six year average adjusted earnings per share is $3.91
Consider contrarian buying below $31.28 (8 times average adjusted EPS)
Consider value buying below $46.92 (12 times average adjusted EPS)
Rio Tinto is currently trading at 12.1 times average adjusted EPS. This stock is priced for investment.
Consider speculative selling above $78.20 (20 times average adjusted EPS)
BALANCE SHEET – Morningstar’s database is not working properly, so I don’t have the five year balance sheet data for Rio Tinto.
Book value per share: $33.98 ($62.861 B equity / 1.85 B shares)
Price to book value ratio: 1.4 (under 1.0 is good)
Tangible book value: $21.00 (equity - $23.997 B in intangibles / 1.85 B shares)
Price to tangible book value ratio: 2.26 (under 1.0 is really good)
Current ratio: 1.51 (over 2.0 is good) latest quarter
Quick ratio: 1.07 (over 1.0 is good)
Debt to equity ratio: 0.35 (lower is better)
Percent of total assets:
Real assets (property, plant, and equipment) – 58.06%
Current assets – 15.76%
Intangibles – 13.38%
Other long term assets – 12.8%
CONCLUSION – Rio Tinto is currently a decent dividend stock, but its dividend is not entirely safe. The global recession currently underway will drop Rio Tinto’s price. Their price will drop because worldwide demand for commodities lessens during recessions. Their customers will buy less mined commodities at lower prices, which will hurt profitability. Stay away from RIO until the depths of the recession. This could be a long time.
DISCLOSURE – I don’t own Rio Tinto (RIO).
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