High Dividend Stocks 101

Rio Tinto (RTP) operates worldwide to mine and process a wide variety of minerals.  One great page on the Rio Tinto site highlights this geographic diversity visually, and also emphasizes their strong presence in Australia and the U.S.  In my opinion both of these factors should offer some protection from political risks–including the risk of nationalization.

Rio Tinto’s  broad product line also offers some protection by means of diversification, but that hasn’t seemed to help much lately.  RTP is down about 75% from a year ago–and that’s one reason I’m looking.  Rio Tinto produces aluminum, borax, coal, copper, diamonds, gold, gypsum, iron ore, lead, molybdenum, nickel, potash, salt, silver, uranium, zinc, and more.  You have to expect many of these product lines to suffer greatly in a recession, but I believe that most of them will also rebound strongly when the recession ends.  On top of any normal bounce Rio Tinto might expect to benefit from at that point, I think it’s also worth considering any upside that might develop for at least three more reasons. 

First, I think we can safely predict that inflation is baked into the cake now.  Energy and raw materials are both natural hedges to some degree.  Second is the continued rise of China, India, et al.  For many reasons (too many to list here), I don’t beleive that story is over.  Finally, at the risk of sounding “pure doom and gloom” I wonder when the era of the U.S. dollar as the world’s reserve currency will end.  When that occurs–and I don’t claim to know when it will–I would expect a MAJOR drop in the dollar and a corresponding rise in the value of profits earned in foreign currencies.

As I write this Rio Tinto is priced at $99.40, with a yield of 5.5 %.  Granted, this is the season of “all dividends are suspect,” but all things considered, I think you can build a strong case for Rio Tinto to outperform most stocks in the mid to long term.  What do you think?

metals and mining coal, gold, iron ore, Rio Tinto, RTP, silver, uranium

Freeport-McMoran Copper & Gold (FCX) is a stock I’ve had my eye on for years.  It’s a major worldwide player in copper and gold explortion and mining, with significant exposure to silver and molybdenum as well.  I favor the copper exposure simply because the growth of India and China seem unstoppable.  The gold is a nice touch in my eyes because I have so much faith in our federal government–and its ability to ignite a whole lot of inlflation as our bailouts continue.

So what’s been holding me back?  Well, a couple of things.  First, I was concerned that the dividend was a little low.  Granted, it’s all relative, but when I buy individual stocks I like to see current high dividends and a history high dividends.  The dividend was a little low and the “history” part was a little weak for my tastes.

The recent market correction, however, brought FCX down to a price where the yield has climbed over 10%.  Valuable commodities, inflation protection AND a high dividend yield?  I couldn’t resist, so I bought a few hundred shares–just before the directors cut out the dividend and the price dropped another 15%.

How sorry am I?  Well, I rather I’d waited.  On the other hand, I won’t buy any stock if I’m not willing to hold it for 5-10 years minimum.  And no single stock makes up more than a few percent of my portfolio.  Maybe I’m too pessimistic (in terms of inflation), or optimistic (in terms of a global economic recovery), but I am reasonably certain that a turn of the business cycle combined with increasing rates of inflation will take care of this situation for me long before 5 years has elapsed.

What do you think?  Am I just whistling past the graveyard here?

metals and mining copper, FCX, gold, inflation, mining