Why today is a good day to own Rio Tinto shares

A female miner wearing a high vis vest and hard hard smiles and holds a clipboard while inspecting a mine site with a colleague.

Today is a good day to have Rio Tinto Ltd (ASX: RIO) shares in your portfolio for a couple of reasons.

The first reason is that the mining giant’s shares are pushing higher in morning trade.

At the time of writing, the company’s shares are up 1.5% to $130.88. This follows a jump in iron ore prices overnight.

Another reason that it is a good day to own Rio Tinto shares is that today is pay day for eligible shareholders with the miner’s latest dividend heading into their bank accounts.

The Rio Tinto dividend

As a reminder, in February, Rio Tinto released its full year results for FY 2023 and reported a 3% decline in revenue to US$54,041 million and a 9% reduction in underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) to US$23,892 million.

This reflects a strong performance from the company’s iron ore operations, which was fully offset by weaker performance across the rest of the business. This was due largely to lower commodity prices and higher costs from those operations.

The good news for shareholders is that this didn’t stop the Rio Tinto board from increasing its final dividend for FY 2023.

The miner’s fully franked final dividend per share was increased 14.7% to US$2.58 (A$3.928) per share.

Rio Tinto’s shares traded ex-dividend for this back on 7 March and those that held its shares at that point will now be receiving this dividend in their back accounts later today.

Unless of course they elected to take part in the company’s dividend reinvestment plan. In which case they will be receiving their Rio Tinto shares instead today.

What’s next for Rio Tinto?

According to a note out of Goldman Sachs this morning, its analysts have been updating their estimates for the coming years in response to yesterday’s somewhat underwhelming first quarter update.

Its analysts are now forecasting fully franked dividends of US$4.30 per share in FY 2024 and then US$4.50 per share in both FY 2025 and FY 2026. This is the equivalent of A$6.68 per share and then A$6.99 per share, respectively, at current exchange rates.

Based on the current Rio Tinto share price, this will mean dividend yields of 5.1%, 5.3%, and 5.3% for income investors over the next three financial years.

Are Rio Tinto shares good value?

Goldman has responded to the result by retaining its buy rating with a trimmed price target of $138.90. This implies potential upside of approximately 6% for investors over the next 12 months.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.