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This is one of my favourite FTSE 100 value stocks right now

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Image source: Getty Images

Habitual Fool readers will know that I’m something of a noisy cheerleader for value shares. In particular, I love to hunt down cheap FTSE 100 stocks that offer market-beating cash dividends. By reinvesting these regular dividends, I can reduce my portfolio’s ongoing volatility — or I can use these regular payouts to offset my skyrocketing bills.

Top of the FTSE 100 stocks?

2022 was a brutal year for investors worldwide, thanks to plunging stock and bond prices. What’s more, pundits expect recessions in the US, UK and Europe this year. But how broad, deep and long these economic contractions will be remains to be seen. What if we somehow dodge a major slump?

It’s often said that stock markets ‘climb a wall of worry’, so to be a long-term investor requires positivity as well as patience. That’s why I’m hopeful for the future prospects of FTSE 100 Anglo-Australian mega-miner Rio Tinto (LSE: RIO).

A global rebound would reinvigorate Rio

As one of the world’s largest mining companies, Rio Tinto has a market value of £104.2bn — making it a real Footsie super-heavyweight. It’s also one of the world’s largest suppliers of aluminium, copper, iron ore and zinc.

These base metals are in huge demand during boom times, but metal prices tend to slump during downturns. That why even the largest mining firms sometimes cut their dividends — as Rio last did in 2016.

Then again, former global growth superstar China recently abandoned its zero-Covid lockdowns, as well as improving liquidity for its ailing property market. Hence, as the ‘world’s workshop’ opens up again, commodity demand could take off later this year.

Obviously, I could equally be wrong, with slowing global growth hammering mining stocks. All the same, Rio’s shares look cheap to me. At the current price of 6,213p, they trade on a price-to-earnings ratio of 7.1 and an earnings yield of 14.1%. That’s about half as ‘expensive’ as the wider FTSE 100.

What’s more, Rio’s bumper dividend yield is 8.5% a year — more than twice the Footsie’s. And this cash payout is covered 1.7 times by earnings, giving it a solid foundation for future growth. That’s why I already own this mega-cap share — and I’d happily buy more today, if I had the spare cash.

Warning: Rio is a volatile stock

Although I’m very bullish about Rio Tinto’s future revenues, earnings, cash flow and dividends, I know all too well how volatile its shares are.

Based on the current share price of 6,213p, this stock is actually 11.3% ahead over the past 12 months. But it’s moved in a wide range over the past 52 weeks, from a high of 6,343p on 3 March to a low of 4,424.5p on 31 October. We bought this stock in late June at a price of 5,203.7p, just before it started whipsawing up and down before rebounding hard since Halloween.

In summary, I wouldn’t describe it as one for the faint-hearted. But its juicy — yet potentially sustainable — cash dividend is a big attraction for me as a Rio Tinto shareholder.

The post This is one of my favourite FTSE 100 value stocks right now appeared first on The Motley Fool UK.

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Cliff D’Arcy 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.

Motley Fool UK 2023