I’d buy this FTSE 100 share now for a 2023/24 recovery

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Though it’s been a tough 2022 so far for global stock markets, UK share prices have held up relatively well compared to other regions. For example, the blue-chip FTSE 100 index is down a mere 0.5% this calendar year. Also, it’s also gained 3.8% over the past 12 months. Meanwhile, the US S&P 500 index has lost 14.8% of its value since 31 December 2021. And over the past 12 months, it has declined by 7.7% (all figures exclude cash dividends).

FTSE 100 shares still look cheap to me

I know that I bang on about this a lot, but FTSE 100 shares (and a fair few FTSE 250 stocks) still look cheap to me at present. Many trade on lowly earnings multiples and also offer market-beating dividend yields. As a value investor, this is my happy hunting ground. Here is one cheap Footsie share that I already own, but would happily buy in August for its generous passive income and potential capital gains.

Rio Tinto slashes its dividend

Rio Tinto (Spanish for ‘red river’) is the world’s second-largest mining company. Its core products — including aluminium, copper, and iron ore — help fuel the world’s factories, especially in China. But the Anglo-Australian mega-miner’s shares have taken a beating since they peaked at nearly £63 in early March. Here’s how this FTSE 100 firm’s fundamentals stack up after steep price falls in June and July:

Share price 4,838.5p
52-week high 6,293.28p
52-week low 4,319.87p
12-month change -21.0%
Market value £80.1bn
Price-to-earnings ratio 5.3
Earnings yield 18.9%
Dividend yield 12.1%
Dividend cover 1.6
*Share price as at market close on Thursday, 28 July 2022

Rio Tinto’s stock dipped again on Wednesday, after it reported a 29.5% fall in underlying earnings in the first half of 2022. It also slashed its dividend payout to $4.3bn, less than half of the $9.1bn paid out for H1/2021. This follows steep falls in metals prices since early March.

By the way, the dividend yield shown above is a trailing (backward-looking) figure and therefore does not reflect the newly announced cut. But a cash yield of even half the current level — say 6%+ a year — would still look attractive to me as an income-seeking investor.

Right now, things don’t look too promising for this FTSE 100 super-heavyweight. Economic growth is slowing rapidly, driven down by red-hot inflation (soaring consumer prices), sky-high oil prices, and rising interest rates. There are also worries over a prolonged war for Ukraine and a possible global recession.

Nevertheless, my wife bought Rio Tinto shares in late June for our family portfolio, to hold for the long term. Even after the dividend reduction, I still see this as a solid business to own for dividend income and future capital gains. And that’s why I might buy more shares in August if the price continues to decline!

The post I’d buy this FTSE 100 share now for a 2023/24 recovery appeared first on The Motley Fool UK.

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Cliffdarcy has an economic interest in Rio Tinto shares. 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.