What went wrong with Rio shares last month?
The post Why the Rio Tinto (ASX:RIO) share price is down 17% in a month appeared first on The Motley Fool Australia. –
With a new month now upon us, it’s a good time to cast our collective eyes back at the month that was. August turned out to be a pretty good time for ASX shares.
Taking in the avalanche of earnings reports we saw over the month, it’s a testament to the strength of these reports that the S&P/ASX 200 Index (ASX: XJO) managed a gain of 2.1% for the month. However, one major ASX 200 constituent wasn’t joining the August party. That would be the Rio Tinto Limited (ASX: RIO) share price.
Last month, Rio Tinto shares had one of their worst months since the 2020 market crash. This giant iron ore miner started August at a share price of $133.42, but finished up yesterday at the far lower price of $112.14 a share. For the record, the Rio Tinto share price has given up another 2.6% so far today, and is going for $109.15 at the time of writing.
This steep share price fall translates into a month-to-month loss of 15.95%. What’s more, Rio also hit its current all-time high early in August – $137.33. By the end of the month, Rio had fallen more than 18% from that high watermark.
So why did Rio Tinto have such a month to forget?
Rio impresses with earnings
Well, it’s worth noting that Rio reported its FY21 half-year results just before August began, back on 28 July. As we reported at the time, the mining giant revealed a 71% surge in revenues to US$33.08 billion and a 156% increase in underlying earnings to US$12.2 billion.
This enabled Rio to announce a 143% increase for its interim dividend to US$3.76 per share, fully franked, as well as a special dividend of US$1.85 per share.
Now investors seemed to be initially bullish on these numbers. The Rio share price spent the following week hitting its new all-time high after all. However, it also goes without saying that this sentiment had well and truly worn off by the end of the month.
So what happened to Rio?
What went wrong with the Rio Tinto share price over August?
Well, that monster dividend that was announced had to come out of the Rio share price at some point. And that happened on 12 August when Rio shares went ex-dividend. As a result, we saw a big drop in the Rio share price (roughly 7%) when this occurred.
But that doesn’t explain away Rio’s near-16% drop for August. The other major factor that might have been at play over the month was commodity pricing. Specifically that of iron ore, Rio’s largest earnings base.
Iron ore had an absolute shocker over August. According to Markets Insider, iron ore was asking around US$211 a tonne at the start of August. By the end of the month, this had fallen steeply to approximately US$151 a tonne. That’s a loss of almost 30%. Since iron ore is Rio’s primary cash cow, this dramatic fall in pricing has evidently resulted in the market revaluing Rio shares accordingly.
At the current Rio Tinto share price, this ASX 200 miner has a market capitalisation of $40.7 billion and a dividend yield of 8.23%.
Should you invest $1,000 in Rio Tinto right now?
Before you consider Rio Tinto, you’ll want to hear this.
Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now… and Rio Tinto wasn’t one of them.
The online investing service he’s run for nearly a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.
*Returns as of August 16th 2021
Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.