Dividend devotee: I’d buy Rio Tinto shares for $2,000 of monthly passive income

Interested in bolstering your passive income portfolio with just one S&P/ASX 200 Index (ASX XJO) dividend share? Rio Tinto Ltd (ASX: RIO) could be worth considering.

The iron ore giant currently offers a notable 6.2% dividend yield. That means the stock could be capable of paying out $2,000 a month with a smaller initial investment than many of its ASX 200 peers require.

Here’s how I’d aim to build a strong monthly passive income by investing in high-yielding Rio Tinto shares.

I’d buy Rio Tinto shares for $2,000 of monthly passive income

Passive income is just that – income that comes without any active work on your part. I don’t know many people who would turn down the chance to earn $2,000 each month for doing nothing.

And that’s what’s on offer to those holding enough shares in Rio Tinto.

Each of the iron ore favourite’s securities has offered $7.10 of dividends over the last 12 months.

At that rate, a 3,380-strong parcel of the ASX 200 giant’s stock could bring in $24,000 of passive income annually.

That’s before considering potential tax benefits born from the franking credits accompanying the payouts or dividend growth, like that forecasted by Goldman Sachs.

However, Rio Tinto shares don’t necessarily come cheap. They’re currently trading for around $113.91 apiece.

Thus, my desired 3,380 shares would come with an approximate price tag of $385,000. That’s not exactly pocket change. Fortunately, I believe there’s a way to lessen the outright cost.

Making the most of compounding

If my goal was to command a parcel of 3,380 Rio Tinto shares but I didn’t have quite enough cash, I would work to invest a smaller amount each week and employ the company’s dividend reinvestment plan (DRP).

That would allow me to use any dividends I receive to buy more shares without paying a commission. Meanwhile, I would be consistently bolstering my holding on the market.

Thus, my investment could compound over the coming years until it reaches my goal.

Though, it’s worth remembering that past performance doesn’t indicate future performance. Further, as a materials company, Rio Tinto’s earnings – and, as an extension, its dividends – tend to fluctuate alongside commodity prices.

The post Dividend devotee: I’d buy Rio Tinto shares for $2,000 of monthly passive income appeared first on The Motley Fool Australia.

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• How to generate $500 of monthly income from Rio Tinto shares

Motley Fool contributor Brooke Cooper 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.

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