THE DAILY ENCRYPT

[date-today format='F j, Y']

1 stock to buy now and hold for passive income!

Inflation is getting hotter with disposable income being outstripped by a lack of wage growth. Here's one high-dividend stock I’d buy for passive income! The...
Photo by geralt

As the world’s leading iron ore producer, Rio Tinto (LSE: RIO) reported satisfactory earnings along with a mammoth dividend on Wednesday. With disposable income expected to fall in the current high inflation environment, I’ll  run through the reasons why I’m looking to add Rio Tinto shares to hedge against this — and introduce more passive income to my portfolio.

A dividend yield that outstrips inflation

Inflation is expected to get hotter going into April as energy and food prices continue to soar. While the Bank of England is expecting inflation to peak at 7.25%, Rio Tinto announced an enormous 8.8% dividend yield ($10.40 per share) on its earnings call. This would outstrip the expected inflation rate, assuming one is to buy the stock at its current price, as dividend yields get lower when the stock price goes up. As such, this makes the commodity giant’s stock a lucrative one to add to my portfolio.

Upside potential

Although many analysts are predicting a slowdown in Rio Tinto’s growth in the short-to-medium-term, I am still confident in the company’s ability to at least maintain its current trajectory. As the world’s largest producer of iron ore, the majority of its revenue comes from China (57.2%). And as an emerging market with room to grow on the manufacturing front, Rio Tinto stands to benefit from the strong economic rebound post-Covid. Historically, many countries tend to invest heavily in manufacturing post-recession, and China will be no different. This sentiment is further aided by positive official manufacturing production figures that have continued to grow every month since April 2020.

Moreover, a bullish commodity market currently will help profit margins for the foreseeable future as the price of iron ore continues to creep back up towards the $150 per Dry Metric Ton mark. It is also worth noting that Rio’s shares are currently trading at 13% off their all-time-high. With a tremendously healthy price-to-earnings (P/E) ratio of 6.63, the share price has room for growth leading up to its ex-dividend date in April.

Potential headwinds

Despite of all the positives in buying Rio Tinto, however, there are a couple of risks associated with the stock that are worth mentioning. For one, many analysts are predicting that the stock’s dividend could shrink over the next three years due to slower economic growth and high processing costs, possibly dissipating any special dividend and forcing Rio Tinto to revert to its standard dividend yield of approximately 5%. The company itself has already warned in its earnings report that increasing energy and labour costs placed a cap to its earnings potential in 2021.

Additionally, Rio Tinto’s profit margins will also be at the mercy of the price of iron ore, as there is a possibility that the price of iron ore could plummet like it did in late 2021.

Nevertheless, I am strongly considering acquiring shares in Rio for my portfolio whilst monitoring the wider macroeconomic landscape leading up to its ex-dividend date.

The post 1 stock to buy now and hold for passive income! appeared first on The Motley Fool UK.

Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices

Make no mistake… inflation is coming.

Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.

Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.

That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…

…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!

Best of all, we’re giving this report away completely FREE today!

Simply click here, enter your email address, and we’ll send it to you right away.

More reading

These could be the best FTSE 100 shares to invest in
2 of the best FTSE 100 shares to buy right now
Is Rio Tinto stock a no-brainer buy with its 13.5% dividend yield?
Here’s why I’m avoiding the record Rio Tinto dividend
Which of these 10 FTSE 100 monster shares would I buy today?

John Choong has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

admin

admin

admin

admin

© 2022 The Daily Encrypt. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Latest News
PRESS RELEASES