When calculating how a lot second revenue an funding pays out, there’s a couple of methods to have a look at it.
Many traders depend simply the dividends as revenue, even when the inventory made notable capital positive factors. That’s as a result of cashing out any inventory positive factors would deplete the variety of shares held.
Nonetheless, since you would technically money out any time and nonetheless maintain the equal worth invested, it’s honest to contemplate the full return as revenue.
For instance, Rio Tinto (LSE: RIO) isn’t the highest-yielding on the FTSE 100, at round 4.2%. However the share worth is up virtually 66% previously 12 months to £71.60.
That equates to a meaty complete annual return of round 70%.
So, 1,000 shares purchased a 12 months in the past when the value was £42.45 would have price £42,450. Right now, that very same funding would have grown to round £75,348, with dividends included.
That’s a mind-blowing £32,898 that may very well be withdrawn as a ‘second revenue’.
Let’s see how Rio Tinto obtained right here.
Stable mining demand
Mining has been one of many strongest sectors over the previous 12 months, and Rio Tinto has benefited from that backdrop. Copper now makes up about 30% of Rio Tinto’s earnings, whereas iron ore has slipped to round 60% of the group complete.
That’s key to the expansion narrative, as a result of copper is linked to electrification, energy grids, and knowledge centres — all of which help demand.
However Lithium is a good greater a part of the story. Rio Tinto’s Jérôme Pécresse stated: “Lithium demand within the subsequent two years goes to be far more balanced between EVs and vitality storage.”
That’s encouraging, pointing to a wider market than simply electrical automobiles. Rio’s newest annual outcomes additionally confirmed underlying EBITDA of $25.4bn and a stronger working money stream, which helps help the dividend.
In abstract:
- Copper has turn out to be an even bigger earnings driver.
- Lithium might add one other development leg.
- The dividend stays backed by sturdy money era.
Dangers to look at
Progress apart, I wouldn’t ignore the warning indicators. Some market commentators assume the mining rally could also be dropping steam, and RBC Capital Markets downgraded Rio Tinto to Underperform from Sector Carry out on 2 June 2026. On the similar time, the dealer altered its worth goal to £64, which suggests warning quite than enthusiasm.
There’s additionally a broader valuation threat. Rio has already had a powerful run, so expectations are greater now than they have been a 12 months in the past. If iron ore weakens or China demand disappoints, the share worth can transfer shortly within the incorrect route.
That’s why mining shares could be rewarding, however they’re not often calm.
The underside line
For me, Rio Tinto exhibits how a dividend inventory can turn out to be an enormous second-income winner when capital positive factors be part of the payout. Nevertheless, it’s usually thought of finest apply to reinvest any dividend positive factors and compound them over the long run.
Rio had a superb run however it’s nonetheless a cyclical miner, not a sleepy revenue utility. As such, I might solely think about it as a small place in a diversified portfolio, the place it may possibly enhance returns with out taking on the entire plan.
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Mark Hartley doesn’t maintain any positions within the corporations talked about.
