Earnings results are a great way for investors to judge a company. They’re used to determine whether companies are on track with their initial guidance. These results can often radically move share prices in either direction, depending on the numbers reported. So, here’s an earnings preview for three FTSE firms reporting results this week.

The usual approach is to compare firms’ new numbers to those from prior years. But certain revenue figures may have been impacted by the pandemic, so it’s important to get context from pre-pandemic levels too. It can also be useful to consider whether a company can perform better than its previous year’s numbers, or if it can beat analysts’ annual forecasts. Analysts in the UK don’t always publish earnings previews for quarterly or half-year periods, but given their popularity, the shares covered below are exceptions. All of them have financial years that end in December.

Rio Tinto (H1 Earnings)

Rio Tinto (LSE: RIO) is an Anglo-Australian multinational company. It’s the world’s second-largest metals and mining corporation. The FTSE 100 firm’s main export is iron ore. Rio is set to reveal its H1 numbers for its six months performance ending June on 27 July.

Its earnings preview seems to indicate a slowdown in both its top and bottom lines. This is most likely due to the perpetual lockdowns in China that have been limiting construction activity. China is the group’s biggest customer, hence the gloomy forecasts. That being said, a sudden change in health policy in China could see Rio edge closer to its FY21 figures and could spell a healthy jump in its stock.

Barclays (Q2 Trading Update)

Barclays (LSE: BARC) is one of the UK’s biggest banks. It operates in many countries across the globe, and also operates an investment banking division. The bank is expected to disclose its Q2 figures for its three-month performance ending June on 28 July.

Analysts covering Barclays are expecting the bank to improve on its total income marginally this half, on a year-on-year basis. However, its most recent earnings per share estimate has been downgraded from 7.6p in the last week. The increase to its top line is most likely due to the effects of higher interest rates. Nonetheless, a decrease in investment banking activity from the current bear market is going to cause its bottom line to suffer. But if the dual-listed stock surprises investors with better than expected figures, a rally could be a possibility.

NatWest (H1 Earnings)

NatWest (LSE: NWG) is another UK bank reporting results this week. The group operates a wide variety of banking brands, offering personal and business banking, private banking, insurance, and corporate finance. It’s scheduled to unveil its H1 earnings for its six months performance ending June on 29 July.

Just as is the case with its sector peer, analysts are expecting the same trend. Alongside that, investors in its shares and the wider stock market will be paying attention to its remediation figure and number of late-stage loans to determine whether the UK is heading for a recession. The former is essentially the amount of money allocated as a buffer to cover potential defaults from customers.

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John Choong has no position in any of the shares mentioned. The Motley Fool UK has recommended Barclays. 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.

General Mills

While the S&P 500 flirts with bear market territory, consumer foods company General Mills (NYSE: GIS) continues to hit all-time highs. On a year-to-date (YTD) basis, the stock is up 11%! Not only that, the board recently approved a 6% increase to its quarterly dividend, bringing its total dividend to $0.54 per share. Nevertheless, what makes it such a lucrative stock is its track record of consistent and growing dividends, which has lasted over 120 years!

Aside from its dividend, however, the company continues to post steady and healthy margins (14.3%), despite ongoing inflationary pressures. General Mills’ top line shows no signs of cooling either when taking June’s Consumer Price Index report into account. Although cereal prices are up 2.5% on average, May’s retail sales data indicates that grocery sales are up 1.2% month-on-month (M/M). This aligns with what CEO Jeffrey Harmening mentioned, that General Mills is benefiting from consumers switching to at-home eating.

Rio Tinto

Another Dividend Aristocrat on my list is Rio Tinto (LSE: RIO). Like General Mills, Rio has been paying consistent dividends for the past few decades, even during the last three financial crises. Nonetheless, its share price is down 3% (YTD).

As the second biggest iron ore producer in the world, Rio exports the bulk of its iron to China. Therefore, lockdowns across China have resulted in a 15% decline in its share price over the last month. Consequently, I’m expecting Rio’s dividend to fall in the near term. But if history is any indicator, a post-Covid rebound in China’s economy will most likely boost Rio’s top line and dividend exponentially. I only need to refer to the difference in dividends from 2020 and 2022 (‘Peak-Covid’ vs ‘Post-Covid’) to make my case.

Additionally, the miner boasts excellent profit margins that average above 20%. With a healthy debt-to-equity ratio of 21.7%, and cash ($15.3bn) comfortably covering debt ($12.2bn), the FTSE 100 firm seems well equipped to handle a potential economic slowdown.

Worthy dividend?

Having said all that, these two dividend stocks have good track records. It suggests that they are able to provide some passive income through good and bad times. As a matter of fact, their average dividend yields outperform the S&P 500. But do I think these stocks are worth a buy?

Well, General Mills’ financials put me off investing in its shares. The manufacturer has a staggering amount of debt ($11.6bn) with a minuscule amount of cash ($819m) in its reserves. With interest rates set to continue rising, debt repayments could become more costly, and potentially lower its dividend. Furthermore, its average price target of $73.87 could indicate that the stock is overvalued at this time.

On the other hand, Rio Tinto has strong financials and earnings power. As a result, the current dip is a buying opportunity for me, as I aim to capitalise on an eventual rebound in the Chinese economy. After all, its average price target is £56.43. This presents me with a 24% upside if I were to invest today.

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• The only FTSE 100 stock I own right now

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.

But that fall hides the fact that some shares lost a lot more than others, some for good reasons. But often these days I’ve found that share prices can tend to overreact to any news.

That’s largely because markets are short-term-focused in nature — and that can create buying opportunities for a long-term investor like me.

Looking beyond today’s news

So last week, when I saw one of the highest-dividend shares of the FTSE 100, Rio Tinto (LSE:RIO), trade down over 10%, I knew I had to figure out if it was a short-term problem or long-term opportunity.

What was driving the change — and did I think it was reasonable? Was it perhaps finally a long-term buying opportunity?

Why did Rio fall more than the FTSE 100?

Rio Tinto may be a global mining giant but it has a fairly concentrated risk exposure, with about 60% of its earnings currently derived from iron ore.

Other FTSE 100 constituents have far less exposure to this particular market. So when iron ore prices fell sharply last week, mining shares including Rio Tinto, fell in line with the sell-off, while other shares were unaffected.

Digging into the story further reveals that Chinese demand is the key driver behind iron ore prices, as it’s the biggest buyer, accounting for about 70% of the market.

So markets were correctly reacting to China’s decreasing steel mill production figures, combined with concerns that its strict policies on Covid will continue to dampen demand.

Taking the long-term view on Rio Tinto

However, when I looked at the same information from a long-term perspective, that’s when I saw my opportunity.

I believe that eventually China will figure out a way to live with Covid, like the rest of the world is slowly doing. Plus, commodity markets tend to be highly cyclical — meaning that what goes up will come down and vice-versa.

I’d never buy an oil company when oil prices are at record highs. But buying a high-quality mining company when its core product falls in price — that makes sense to me as a long-term investment.

That’s especially the case for one with a great track record of rewarding its investors with a healthy dividend rate. At a yield of over 12% at time of writing, it’s the highest-paying dividend share in the FTSE 100.

A bumpy ride ahead?

Mining shares are known for being volatile. That means I’m not expecting a smooth ride while owning my new Rio Tinto shares.

For starters, I will not be surprised if that dividend is cut as revenues fall. But even if halved, that still beats the Footsie’s average of around 4%.

Plus, I like the strategy I can see unfolding at Rio with it developing new markets for its other products. That’s going to help decrease its reliance on iron ore prices and China over time and diversify my risk.

I may have to wait, of course. But over the long-term, I think it should prove a great addition to my diversified portfolio. That’s why I bought this FTSE 100 faller last week.

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Michelle Freeman owns shares in Rio Tinto Plc. 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.

Rising inflation is wreaking havoc with stock markets, leading to declining valuations and increased volatility. The FTSE 100 is down 6% year to date as a consequence, falling over 3% yesterday on news that the Bank of England was raising interest rates to 1.25%.

Portfolio protection

In the UK, inflation reached 7.8% year-on-year for April 2022. The May figure is expected to be released by the ONS on 22 June and is predicted to be even higher. As a consequence, the Bank of England has raised interest rates to 1.25% with the aim of slowing down price growth. This is putting serious pressure on stock valuations as people can now achieve higher risk-free returns.

In order to protect my portfolio from this rising inflation, I am looking to build up positions in income stocks: low-risk, high dividend-paying companies. These types of stocks are perfect for today’s market as they provide stability amongst market-wide volatility, whilst simultaneously outpacing inflation with high dividends. With inflation at 7.8%, I am hunting for good value stocks that pay a yield surpassing this figure.

In addition to high dividends, I am looking for stocks in ‘defensive’ industries. These are industries that tend to perform well in times of market volatility.

Companies in these industries tend to pay consistent dividends and generate stable earnings regardless of the overall stock market. Examples of defensive industries include telecommunication, as telecom firms often have large amounts of pre-existing infrastructure and large customer bases, meaning they can control prices in line with inflation.

An income stock I have my eye on

A high-yielding stock that I currently have my eye on is Rio Tinto (LSE: RIO). It is a multinational mining company, which specialises in base metals. The stock has performed well so far in 2022, up 12% year to date.

Rio Tinto currently offers a juicy 10.6% dividend yield, protecting me against the eroding value of money. In addition to this, the shares currently trade on a very cheap looking 5.1 price-to-earnings (P/E) ratio. This is strides below the widely accepted P/E ‘value’ barometer of 10. Comparing this to another global miner and close competitor, Glencore, I see value. Glencore currently trades on a P/E ratio of 16.

In addition to this, inflation usually benefits commodity producers, as it increases the value of commodities like gold and silver. Therefore, a Rio Tinto position could be a good inflation hedge for my portfolio. Also, the ongoing war in Ukraine has led to concerns over the supply of steel. Rio Tinto mines iron ore, which is a key component of steel. With the supply shortage further driving up iron prices, Rio Tinto is well positioned for more growth.

Therefore, I think Rio Tinto could be one of the best income stocks to add to my portfolio in the current macroeconomic climate. It has a high dividend, is low risk, and has a cheap valuation. I am therefore looking at buying shares for my portfolio soon.

The post How I am using income stocks to combat rising inflation appeared first on The Twelfth Magpie.

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Dylan Hood 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.

Building momentum

As the world’s second largest iron ore producer, Rio Tinto sources iron for the world’s iron and steel industries. The production of steel is essential to maintaining a strong industrial base for construction, particularly buildings. It is for that reason that the Rio Tinto share price is heavily influenced by iron ore prices.

China is the world’s biggest consumer of steel by far, and consequently, is also the Rio’s biggest customer. As a matter of fact, the world’s biggest country contributes to more than half of the company’s sales.

Due to the heavy reliance on China for its revenues, Rio Tinto has seen its share price fluctuate as China comes in and out of lockdowns. Due to the May lockdowns in Beijing and Shanghai, China’s last few Caixin Manufacturing PMI readings have come in below the desired rate of expansion. But with its government recently relaxing restrictions, Rio Tinto shares have rallied over 10% since. Nonetheless, an air of caution surrounds the stock as the uncertain landscape continues. The Chinese government is mass testing in Shanghai again, sparking fears of a new lockdown.

A recessionary top line?

Inflation continuing to run rampant across the world. Both the OECD and the World Bank published a set of gloomy forecasts earlier this week. The former expects global GDP growth to slow sharply this year at 3%, and remain at a similar pace in 2023.

When coupled with China’s zero-Covid policy, the war has set the global economy on a course of slower growth and rising inflation — a situation not seen since the 1970s.

Source: OECD Economic Outlook

The World Bank also expects emerging markets such as China to get hit the most, downgrading growth in emerging markets to 3.4%. Based on these forecasts, I expect the growth in Rio Tinto shares to start tapering off.

A strong core?

Nevertheless, Rio Tinto does have a decent balance sheet to weather a potential global recession. For starters, it has a healthy debt-to-equity ratio of 21.5%. Additionally, it has enough cash and equivalents to cover its current debt. The FTSE 100 firm also boasts an excellent profit margin of over 33% in FY 2021! That being said, its short-term assets do not cover its long-term liabilities. Therefore, if a massive slowdown in free cash flow were to occur, Rio Tinto may struggle to pay off its long-term debt.

Although earnings are expected to decline as a result of a global economic slowdown, things could also very quickly turn around if China abandons its zero-Covid policy. Rio’s reasonable price-to-earnings (P/E) ratio makes the stock a lucrative one for me. But most importantly, its excellent dividend yield of 10% makes it an income stock for me to hold. So, while I expect the Rio Tinto share price to stall, I’ll be buying shares on the dip to generate some passive income over the long-term.

The post Can the Rio Tinto share price keep growing? appeared first on The Twelfth Magpie.

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John Choong has no position in any of the shares mentioned at the time of writing. 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.

It’s a tough call to make as there are so many top income stocks out there. Right now, fund manager M&G and housebuilder Persimmon both yield more than 10%. Imperial Brands and Rio Tinto yield more than 9%. Abrdn and Phoenix Group Holdings pay more than 8% a year. These are incredible returns, at a time when a best-buy easy-access savings account pays just 0.65%.

I’d buy this FTSE 100 Legal eagle

If I could only pluck one dividend stock from the index, I would go for Legal & General Group (LSE: LGEN). The £14.55bn insurance giant isn’t the whizziest stock, but it’s a solid name, with a solid business, and pays a solid level of passive income.

Today, L&G yields 7.2% a year, with dividend cover of 1.3 times. The forecast dividend yield is even more promising at 7.9%, with cover of 1.8.

It’s a pretty reliable dividend too. Unlike FTSE 100-listed insurers Aviva and RSA, L&G maintained its dividends through the pandemic. Management also kept staff on and shunned furlough support.

It didn’t emerge completely unscathed. The group’s final 2020 dividend payment was held flat due to Covid, and management also cut its dividend growth target for the next five years. Yet today’s passive income level still looks enticing to me.

What isn’t so enticing is its growth potential. The Legal & General share price trades at similar levels to five years ago. There have been up and downs along the way, but few signs of a breakout. Yet I’m looking for passive income here, rather than active growth.

The L&G share price crashed on Friday, by 5.62%, compared to a drop of 3.48% across the FTSE 100 as a whole. Yet I reckon current fears could be a buying opportunity, and L&G’s valuation looks tempting to me. It currently trades at a relatively low forward valuation of 8.3 times earnings, well below the FTSE 100 average P/E of 14.3. Its price-to-sales ratio is 1.1. That’s hardly demanding.

This is a top passive income stock

Legal & General is widely diversified across a broad range of personal finance areas, selling everything from general insurance and protection to investment funds, pensions, equity release and bulk annuities. It’s also a direct investor in housing and commercial real estate.

Interestingly, it’s one of just a handful of companies that continue to sell annuities, which could now swing back into fashion as interest rates finally pick up. The group is also well capitalised, and has forecast operating margins of 18.5%, and return on capital of 10.6%. This should help keep that passive income sustainable.

I’m not getting carried away. Legal & General is one of those stodgy, boring stocks that investors overlook when markets are flying. That may be an advantage right now. One year ago, it reported a 2% dip in full-year operating profits to £2.4bn. We will find out how well the last year has gone when it reports on Wednesday.

Another risk is that lack of share price growth — and the worse-than-average fall last week that I mentioned above. If it fails to grow in price, its dividends may not be enough.

Either way, I’d buy it for passive income ahead of any other FTSE 100 stock today. Then hold it for years and years.

The post If I could only buy one FTSE 100 dividend stock for passive income, I’d choose this appeared first on The Twelfth Magpie.

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Harvey Jones doesn't hold any of the shares mentioned in this article. The Motley Fool UK has recommended Imperial Brands. 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.

I’m impressed by any company that manages to continue paying dividends right now, as so many others scrap theirs. It tells me the underlying business remains healthy, still generates cash and is well placed to weather the stock market crash.

Mining giant Rio Tinto (LSE: RIO) offers investors a thumping yield of 6.6%. It is now the fifth biggest dividend stock on the FTSE 100, making up around 5% of total dividends paid, according to research from AJ Bell.

Stock market crash opportunity

The dividend has a decent amount of cover, currently 1.62 times earnings. Right now, the big question is how the global economy performs, as that will dictate demand for the metals and minerals that Rio Tinto produces, and how big a FTSE 100 bargain it is.

China is its biggest customer, and there are tentative signs that its virus-battered economy is starting to recover. Yesterday, Rio Tinto’s chief executive J-S Jaques said that “demand in China continues to recover”. That is encouraging, although he added that the outlook in the rest of the world remains uncertain.

He said Rio’s “world-class portfolio and strong balance sheet” should serve it well in all market conditions. It is particularly valuable amid current stock market volatility. I’m encouraged to see the iron ore price hold steady $84 per tonne, four times its production costs of less than $20, as this is Rio’s main resource. It looks a FTSE 100 bargain buy-and-hold to me.

FTSE 100 bargains to be had

The stock market crash has also driven energy giant SSE (LSE: SSE) into FTSE 100 bargain territory. Its share price has fallen around 25% this year.

Despite the slump, management has yet to cancel the dividend, which currently yields a handsome 6.7% a year. However, it is worth noting that cover is relatively thin at 1.22 times earnings. This stock has been a dividend favourite for years and I was pleased to SSE management stating it is still aiming to hit its target of paying 80p per share, although it will continue to monitor the situation.

SSE has other challenges, such as funding its transition to low carbon energy, but earlier this month successfully raised €1.1bn through five- and 10-year dual tranche eurobonds, which will cover its refinancing and funding requirements for the rest of the year.

It is great to see these two blue-chip companies still paying dividends, despite the stock market crash. There are no guarantees that will continue as Covid-19 takes us into unknown territory. However, these two FTSE 100 bargains still look tempting to me.

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Harvey Jones 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.

Redesigning the business 

Rio Tinto (LSE: RIO), is a great example. Over the past five years, this miner has overhauled its business model. Nearly $17bn of disposals have been announced since 2013. Coal assets have been disposed of, and the company has double down on what it knows best: iron ore and aluminium. Production of these two commodities now makes up more than three-quarters of revenue. 

By selling off assets, Rio has been able to pay down most of its balance sheet debt. At the end of 2015, the company reported net debt of nearly $14bn or 1.3 times earnings before interest tax depreciation and amortisation (EBITDA), which was hardly troubling by any standards (a net debt-to-EBITDA ratio of two or more is a red flag), but management wasn’t comfortable returning capital to investors without a fortress balance sheet behind the business. Today, net debt stands at just $5.2bn or 0.3 times EBITDA. 

As well as paying down debt, the company has been returning cash from operations to investors. So far this year, management has announced $5.2bn of share buybacks, and analysts believe another $3.5bn could be paid out to investors when Rio completes the sale of its stake in Indonesia’s Grasberg copper mine next year. 

On top of buybacks, the company has also been paying out record amounts of cash to investors. Analysts believe the business is on track to return a total of 226p to investors via dividends in 2018 giving a dividend yield of 6.4%. The payout is expected to fall slightly next year, although analysts are still forecasting a yield of 6.1%.

Rising payout 

If Rio’s attractive dividend credentials are not enough to win you over then perhaps BHP Billiton‘s (LSE: BHP) prospective 8.6% dividend yield will. 

Just like Rio, over the past few years, BHP has been cutting costs and selling assets, using the cash generated from both of these initiatives to reduce debt. The rest has been returned to investors. 

After slashing its distribution by more than 70% to just $0.29 in 2016, analysts are forecasting a total full-year dividend of $1.65 (129p) per share for BHP’s current financial year. Like its peer, BHP has adopted the strategy of returning all excess cash to investors. Unfortunately, this means that unlike a progressive dividend policy, where management tries to increase the payout every year, dividends will be more volatile because they are linked to earnings. Next year, analysts are expecting a 6% decline in BHP’s earnings per share, which will translate into a 25% reduction in the company’s full-year dividend they believe. Still, even after this reduction, the shares are on track to yield 6.5%.

With high single-digit dividend yields on offer, I think both BHP and Rio are both bargains after recent falls.

The post I think these FTSE 100 dividend stocks are bargains after recent falls appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share 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.

Direct route

Take Direct Line Insurance Group (LSE: DLG). Everybody recognises the motor and home insurer’s red telephone, and everybody knows what the company does. That hasn’t stopped its share price falling 13% in the last year, although paradoxically this makes it a tempting buy today.

Direct Line is well into bargain territory trading at just 10.7 times forecast earnings, when 15 times is generally seen as fair value. Better still, it offers a massive forecast yield of 8.4%, although cover is thin at 1.1. Such a dizzying yield is often a sign of a company in distress and the dividend can be vulnerable, but as Rupert Hargreaves points out, Direct Line has committed to returning almost all of its profits to shareholders.

Motor insurance is a competitive market and premiums have fallen over the last year, squeezing its profits. Earnings per share (EPS) are forecast to rise a meagre 1% this year and 3% next, but the combination of a massive yield and cheap share price is hard to resist.

Legal transaction

Asset manager and insurer Legal & General Group (LSE: LGEN) has also had a tough year, its stock down 10% in that time but it is even cheaper at just eight times earnings. The forecast yield is a heady 6.8% and generously covered 1.8 times by earnings.

L&G has been one of my favourite stocks for some time, and while pension freedom reforms hit annuity sales, it has compensated by energetically pursuing bulk annuity transfers. It recently completed a £4.4bn buy-in for the British Airways pension scheme, the largest ever UK bulk transaction covering nearly 22,000 pensioners, and is actively quoting on £20bn more, with £7bn in exclusive negotiations.

Legal & General looks a strong business with a broad stream of revenues across passive funds, pensions, annuities and protection, even if five consecutive years of EPS growth look set to end this year with a forecast 2% fall. It still tempts, though. One to buy in the next dip?

Iron men

I am impressed to see such juicy dividend bargains on the FTSE 100, and here’s another. Iron ore miner Rio Tinto (LSE: RIO) currently trades at a forward valuation of just 9.7 times earnings, while tempting investors with a forecast yield of 6%, covered 1.7 times.

The shadow hanging over the mining sector is a potential global slowdown, while President Trump’s trade war is squeezing China’s once voracious demand for metals. Chinese GDP growth slipped to 6.5% in Q3, down from 6.7%

That said, Rio’s low valuation gives you plenty of margin in case things do take a downturn, while its strong dividend should see you through until it recovers. However, I’m not quite as bullish as Ian Pierce, who reckons Rio Tinto could be the best dividend stock on the FTSE 100. Given the competition, that is quite something.

The post These 3 FTSE 100 bargain dividend stocks now offer whopping 6% yields appeared first on The Twelfth Magpie.

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• Here’s why I bought this 7.6%-yielding FTSE 100 dividend stock instead of saving in a Cash ISA
• How much would you need in a Stocks and Shares ISA to match the State Pension?
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• How much would I need to invest in these FTSE 100 dividend gems for a £29,061 ISA passive income?

harveyj 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.

A catalyst looming on the horizon is the group’s long-awaited debt financing agreements that it needs to sign to provide funding for the construction of its North Yorkshire mine. While there has been little news on how discussions with lenders are progressing, we have heard recently that Sirius is seeking up to $2bn in government-backed funding out of the roughly $3bn it needs.  

If Sirius management can use the current political environment, where politicians are desperate to invest in the economy post-Brexit and shift funding to northern regions, to strike a favourable deal, investors would surely react warmly.  

This would also be true if we continued to see Sirius sign offtake agreements with future customers such as Singaporean agriculture giant Wilmar, among others. The recent string of deals has been important not only for the potential financial payoff they will bring, but also as a sign that customers do view the company’s polyhalite as a potentially useful fertiliser.

Likewise, further good news on the operational front would show the management team is up to the monumental task of not only constructing its huge mine, but doing so roughly on time and on budget.

However, while any combination of these actions occurring would likely serve as a short-term catalyst for further share price gains, I’m still sceptical of the company’s long-term potential. My biggest qualm remains the uncertain outlook for polyhalite. While it’s clear customers are willing to pay for it, we’re no closer to understanding whether they will eventually pay a premium for it over potash, on which Sirius management is banking to support the economics of its mine.

On top of this, we’re still several years away from first production and the company’s incredibly ambitious mining project is still exposed to the frequent cost overruns and delays that plague many such construction projects. With no current internal sources of funding to support potential issues, any such issues arising would mean management tapping shareholders or lenders for funds again, which is not a situation that appeals to me as an outside investor.

An established option 

Instead, if I were to invest in the mining sector my clear favourite would be Rio Tinto (LSE: RIO). The company survived the recent commodity crash better than many competitors and has emerged from it a more focused, cash-generative firm.

The company has slimmed down its ops to just a few crown assets built around high-grade iron ore. This has boosted group cash flow to record levels, which together with billions in disposal proceeds from deals such as the recent $2.5bn sale of the Australian Kestrel coal mine, has allowed management to increase shareholder returns to their highest ever levels.

While miners will always be cyclical beats, Rio’s management team has proven that its plan to keep leverage low throughout the business cycle and to focus on generating cash rather than top-line growth can richly reward investors. With great assets and a stonking 6% yielding dividend, I think Rio could be the best buy-and-hold mining stock out there for retail investors.  

The post Why Sirius Minerals’ share price could continue rising significantly appeared first on The Twelfth Magpie.

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Ian Pierce 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.