November 24, 2022
  • November 24, 2022

How to Buy Rio Tinto (RIO) Stocks and Shares – Forbes Advisor UK

By on July 7, 2022 0

Investing in mining giant Rio Tinto is not for the faint-hearted due to its price volatility.

In 2022 alone, its share price rose 27% to over 6,200 pence in April, but has since fallen by a similar degree to its current price of 4,650 pence.

Like other mining companies, Rio Tinto took advantage of soaring commodity prices to generate record profits. It also remains very attractive for income seekers, currently trading on a dividend yield of over 12%.

Let’s take a closer look at what you need to know about buying and selling Rio Tinto shares.

Remember that investing in the stock market puts your capital at risk. The value of stocks and investment funds can go down as well as up, and you risk not getting your money back.

Solid annual results

In February, Rio Tinto reported windfall profits for its 2021 fiscal year, with after-tax profit more than doubling from $10(8) billion to $21(17) billion.

The record profit was achieved thanks to an almost 50% increase in profits from iron ore, its main commodity by production volume. While iron ore prices have risen by 45%, there has also been a strong recovery in demand, particularly from China.

Aluminum and copper profits also rose 104% and 90% respectively, thanks to a 50% increase in their respective commodity prices.

Additionally, Rio Tinto reported a healthy cash position, generating 18 (£15) billion of free cash flow in 2021. This took the company from a net debt of 0.7 (0.6) billion to dollars to a net cash balance of $1.6 (£1.3 billion.

Rio Tinto also paid a $15 billion (£12) dividend to shareholders.

Hargreaves Lansdown commented: “Record earnings and inflated shareholder returns cap off a year where we have seen Rio capitalize on soaring commodity prices and focus on commodities that support decarbonization.

Cautious Q1

In its first quarter update in April, Rio Tinto highlighted continuing production challenges, with lower iron ore, aluminum and copper production compared to the previous quarter. Operations have been impacted by staff shortages due to covid, weather disruptions, equipment failures and strikes.

Rio Tinto has also made an all-cash bid to acquire the remaining 49% of Canadian mining company Turquoise Hill for just under $3 billion. Turquoise Hill’s most valuable asset is its stake in the Oyu Tolgoi copper-gold mine in Mongolia.

Outlook

As with all mining companies, Rio Tinto’s performance is highly dependent on commodity prices and, by extension, demand.

Chinese demand has recently fallen due to the return of lockdowns, as well as a housing slump, which could lead to a near-term decline in commodity prices.

Hargreaves Lansdown warns: “It is difficult, if not impossible, to say with certainty which direction commodities will take. Although miners are generally a good hedge for an inflationary environment, they are not immune to rising input costs, which weigh on margins.

While Rio Tinto is well positioned for decarbonization as countries reduce reliance on fossil fuels, it is also highly cyclical. Should fears of a recession in the UK and Europe materialize, they could weigh on demand for commodities.

That said, Rio Tinto’s healthy balance sheet should help weather any downturn.

Please note: investing in stocks does not carry any guarantees. When buying shares of a company, it is possible to lose some or even all of your money.

That said, over the long term – a minimum of five years (preferably longer) – it is possible for equity investments to produce higher returns than those available on low-interest deposit accounts, particularly once inflation taken into account.

Why own stocks?

It’s worth asking why you want to buy stocks. Are you looking for capital growth, dividend income or a combination of both? Your investment goals will determine the type of stocks you invest in, whether they’re high-growth tech stocks or more defensive companies with a reliable stream of dividends.

Most investors are looking for strong fundamentals, including a track record of consistent earnings growth, a strong market position, or products or services with potential for future growth. These should provide a solid platform for future share price growth.

That said, other factors such as takeover rumors can drive a company’s stock price higher. Investors may also be drawn to rallying plays, with a depressed stock price offering rebound potential.

How to buy stocks

Once you have decided which company to invest in, buying stocks involves several steps.

1) Open an account

Whether you are a seasoned stock trader or new to stock market investing, you will need to open an account with a regulated brokerage firm to buy shares of Rio Tinto.

Stock brokerage is a competitive market and services for do-it-yourself investors come in a variety of forms – from online trading platforms run by some of the biggest names in financial services to investment trading apps that work on your smartphone or your tablet.

Before opening an account, keep the following in mind:

  • Keep your ultimate financial goals in mind
  • Be prepared for the ups and downs of the stock market
  • Aim to keep trading costs to a minimum
  • Remember that investing in stocks may incur tax charges, for example, when selling part of your portfolio, unless you use tax-advantaged packaging such as an ISA.

And before you buy stocks, it’s worth asking yourself these questions:

  • Should I take financial advice?
  • Am I comfortable with the level of risk in question?
  • What is my investment budget?
  • Can I afford to lose money?
  • Do I understand the company I am looking to invest in?
  • Am I protected if my platform provider/advisor goes bankrupt?

2) Where is Rio Tinto traded?

The stock symbol for Rio Tinto Group plc is RIO. It is listed on the London Stock Exchange which is open for trading from 8 a.m. to 4:30 p.m., in addition to the Australian Stock Exchange.

3) Do your research

To learn more about Rio Tinto, visit the company’s online investor relations page.

It is also worth comparing Rio Tinto’s valuation to that of other comparable mining companies. One way to do this is to look at relative price-earnings ratios – stocks trading on a high price-earnings ratio have high expectations of substantial future growth.

Another useful research tool is brokers’ 12-month stock price forecasts, which are available on financial websites. There are a number of brokers who track Rio Tinto shares, and their price forecasts give an indication of the upside and downside potential of Rio Tinto’s stock price over the next year.

4) What is your investment strategy?

People tend to invest in two ways: either with a lump sum purchase or through smaller, more stable amounts over time.

This latter method is often referred to as a way of “pound cost averaging,” a stock market hack that helps you pay less per share on average over time when stock markets go down. Rather than waiting to build up a lump sum, this means that an investor’s money can be used immediately in the market. However, drip feeding your investment can sacrifice capital growth if the stock price rises and you will also pay more in stock trading costs.

5) Place an order

Once you’re ready to buy Rio Tinto shares, log in to your investment account or trading app. Type in the stock symbol for Rio Tinto (RIO) and the number of shares you want to buy or the amount of money you are willing to invest.

Many brokerages also allow you to add a “stop loss” once you’ve bought the stock, allowing you to limit your losses if the stock price drops. For example, if you buy shares at £10 and set a stop loss at £9, your shares will be sold if the share price falls below £9, limiting your potential loss to 10%.

6) Review Rio Tinto’s performance

Whether your stock portfolio is full of companies or contains only a handful of stocks, it is essential that you review the performance of each component regularly: monthly, quarterly or annually.

This gives you the opportunity to review performance and ask if any adjustments to your holdings are needed – to maintain the status quo, buy more shares or sell existing shares.

How to sell stocks

At some point, you will want to sell your holdings. To do this, log in to your investment platform, enter the stock symbol (RIO) and select the number of shares you wish to sell.

Note that if you have made a substantial profit, you may be liable for capital gains tax (CGT) when you come to sell your holdings, especially if your shares were held outside of tax-exempt packaging. such as an individual savings account. or a self-invested personal pension.

The non-taxable CGT allowance for the 2022-23 tax year is £12,300. Find out more here about CGT rates and allowances.

How to invest in Rio Tinto through a fund

Investing directly in individual stocks can be an absorbing and hopefully profitable experience. It may also entitle you to shareholder benefits specific to the company in question.

Investing directly in individual companies, however, can make you vulnerable to stock market volatility and unexpected fluctuations in stock prices.

This is why financial experts recommend that most people invest in a diverse mix of asset classes and funds that hold a ready-made portfolio of more than fifty stocks from different companies.

As one of the largest mining companies in the FTSE 100, Rio Tinto is found in many UK investment funds and trusts, as well as tracker-type exchange-traded funds.