How I’d generate a $30,000 second income from Rio Tinto shares

A man smiles as he holds bank notes in front of a laptop.

A man smiles as he holds bank notes in front of a laptop.

Every six months, a large number of ASX shares release their results and report their profits for the period.

Many of these profitable companies like to reward their shareholders by sharing their earnings with them in the form of dividends.

One company that has paid out tens of billions of dollars to its shareholders in recent years is Rio Tinto Ltd (ASX: RIO).

In fact, this month when Rio Tinto released its full-year results, it declared a final dividend of US$2.25 per share. This brought the Rio Tinto dividend to a total of US$4.92 per share in FY 2022.

While this is a 38% reduction on what was paid a year earlier, it still equates to a total payout of US$8 billion for the year. It also represents a payout ratio of 60% of underlying earnings.

That means for every dollar of profit the company generated over the 12 months, it sent 60 cents of this into the pockets of shareholders.

And it’s going to be doing it all again in 2023 according to analysts at Goldman Sachs.

Its analysts are forecasting a US$4.50 per share dividend in FY 2023, which equates to A$6.61 per share based on current exchange rates.

And with Rio Tinto shares currently fetching $118.92, investors will receive a 5.55% dividend yield if Goldman’s forecast is accurate.

What would it take to generate $30,000 of income with Rio Tinto shares?

If you wanted to generate $30,000 of income from Rio Tinto shares, you would need to own 4,586 shares.

This would take a sizeable investment of $545,000 in order to yield the target figure.

The good news is that it wouldn’t be long until you received an even bigger pay check courtesy of Rio Tinto’s shares.

Goldman is forecasting the Rio Tinto dividend to increase to US$5.50 (A$8.08) per share in FY 2024. This means that your 4,586 shares would yield total dividends of $37,050 for that year.

That’s total dividends of over $67,000 across the two financial years. All without lifting a finger.

Though, it is worth remembering that the mining sector can be volatile due to commodity prices. As a result, it would be unwise to put all your eggs in one basket and investors may want to operate a more diverse income portfolio.

The post How I’d generate a $30,000 second income from Rio Tinto shares appeared first on The Motley Fool Australia.

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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 no position in any of the stocks mentioned. 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.

from The Motley Fool Australia

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