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Why Is Rio Tinto Group (NYSE:RIO) Among the Best FTSE Dividend Stocks to Buy Now?
We recently compiled a list of the 10 Best FTSE Dividend Stocks To Buy Now.In this article, we are going to take a look at where Rio Tinto Group (NYSE:RIO) stands against the other FTSE dividend stocks.
Goldman Sachs Research predicts moderate growth for the UK economy in 2025, with GDP rising 1.2%. That is slightly below the Bank of England's (BoE) 1.5% projection and the 1.3% consensus among economists. Moreover, growth is expected to slow as the year goes on, driven by trade uncertainties, tighter budgets, and changes in housing policies. However, inflation is likely to ease through 2025, which could lead to bigger interest rate cuts than the market expects. While most think the BoE will stop cutting rates at 4%, Goldman Sachs sees rates dropping further to 3.25% by mid-2026.
Building on this cautious economic outlook, fiscal policies are also expected to play a significant role in shaping growth. The UK’s autumn budget provided a near-term boost to demand but points to a consolidation in 2025, likely slowing growth later in the year. Inflationary pressures from public sector pay deals and higher taxes on services are expected to persist in the short term but should ease as wage growth slows and labor market tightness lessens.
Amid these broader economic challenges, UK investors may find some optimism in corporate dividends. AJ Bell's latest Dividend Dashboard paints a positive picture for FTSE 100 dividends. Analysts expect payouts to grow by 1% in 2024 to £78.6 billion, followed by a 7% bump in 2025 to £83.9 billion, though still just shy of the 2018 record of £85.2 billion. This strong performance in dividends highlights a contrast to the broader economic challenges, offering a silver lining for investors. Share buybacks remain strong, with £49.9 billion already planned for 2024, on top of £52 billion last year. Combined with £11 billion in expected dividends from the FTSE 250 and £47.2 billion in takeovers, the FTSE 350 is set to deliver a whopping £189.7 billion in total cash returns. That works out to a cash yield of 7.7%, comfortably beating the Bank of England’s 5% base rate, the 3.92% 10-year gilt yield, and the 2.2% inflation rate.
Nevertheless, domestic companies are still grappling with significant headwinds, such as rising costs like National Insurance and minimum wage, all while operating in a sluggish economy. Investors are still favoring the US market, but falling interest rates could nudge some back toward UK stocks. Meanwhile, rising bond yields and pension plans shifting to UK equities might help stocks but could drive up government borrowing costs by reducing demand for gilts.
Our Methodology
For this article, we used the iShares Core FTSE 100 UCITS ETF. The fund aims to replicate the performance of an index comprising the 100 largest companies in the UK. From this fund, we focused on picking prominent stocks with stable yields and strong dividend policies. The list below is ranked in the ascending order of dividend yield as of January 3.
At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here)
Aerial view of an open pit mine, with workers extracting minerals.
Rio Tinto Group (NYSE:RIO) is a big player in the global mining scene, involved in everything from exploration to mining and processing minerals. The company works across four main segments – Iron Ore, where they mine iron ore, salt, and gypsum; Aluminium, which covers bauxite mining, alumina refining, and aluminum smelting; Copper, focusing on mining and refining copper, gold, silver, molybdenum, and other by-products; and Minerals, which includes mining borates, titanium feedstock, iron concentrate, diamonds, and even developing battery materials like lithium. It is one of the best FTSE dividend stocks to monitor.
Rio Tinto Group (NYSE:RIO) missed Q3 production estimates but remains confident in its long-term prospects, especially with its $6.7 billion acquisition of Arcadium Lithium. While iron ore production rose 1%, it fell short of expectations, and copper production dipped due to issues at the Kennecott mine. The company maintains its full-year shipping guidance but warns of rising costs due to inflation. However, Rio Tinto Group (NYSE:RIO) is progressing on growth projects like the Rincon lithium plant, Simfer iron ore mine, and Oyu Tolgoi copper mine. Despite the high premium, the Arcadium acquisition is seen as a strategic move to strengthen Rio’s position in the lithium market.
On December 5, RBC Capital Markets lowered its price target for Rio Tinto Group (NYSE:RIO) from £55 to £54 while maintaining a Sector Perform rating. This adjustment follows the company’s investor day, where it extended its 3% annual production growth target to 2033, partly due to lithium projects. Despite the revised price target, RBC expects Rio Tinto Group's (NYSE:RIO) stock to perform in line with the sector.
According to Insider Monkey’s third-quarter database, 30 hedge funds were long Rio Tinto Group (NYSE:RIO), compared to 29 funds in the earlier quarter. Ken Fisher’s Fisher Asset Management is the largest stakeholder in the company, with 17.5 million shares worth $1.2 billion.
Overall RIO ranks 5th on our list of the best FTSE dividend stocks to buy now. While we acknowledge the potential of RIO as an investment, our conviction lies in the belief that certain AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than RIO but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
