The start of 2022 was a lustrous one for Rio Tinto (RIO -0.81%), whose stock climbed nearly 7% in January and showed no signs of slowing down in the second month of the new year. Shares soared 10.1% in February, according to data from S&P Global Market Intelligence.
What did the market dig about this mining company whose business includes various minerals including gold, aluminum, copper, iron ore, and uranium, among other materials? For one, Rio Tinto reported year-end earnings, while favorable sentiment for the stock from Wall Street was another catalyst.
On Feb. 23, Rio Tinto reported its year-end financials, which featured a company record for cash flow. Whereas Rio Tinto generated free cash flow of $9.4 billion in 2020, the company set a new high-water mark in 2021, reporting free cash flow of $17.7 billion. The driving forces behind the strong cash flow growth came from the aluminum and copper businesses, which accounted for year-over-year free cash flow growth of 155% and 289%, respectively.
Unsurprisingly, the ample cash flow growth helped the company shore up its balance sheet, which Jakob Stausholm, Rio Tinto's CEO, lauded as "the strongest it's been for at least 15 years," in the press release accompanying the earnings report. Rio Tinto ended 2021 with a net cash position of $1.6 billion, representing a considerably more robust position than where it was at the end of 2020, when it ended the year with net debt of $664 million.
Sharing its success with investors, management announced dividends per share totaling $10.40 in 2021, an 87% increase over the $5.57 per share it paid out in 2020.
Early in February, Christopher LaFemina, an analyst at Jefferies, raised his price target on Rio Tinto to $70 from $65 as a result of his more bullish forecast for iron ore prices, according to Thefly.com. In the following days, J.P. Morgan raised its price target to 5,100 British pence from 4,840 pence, and Morgan Stanley hiked its price target to 6,220 pence from 5,220 pence for the stock on the London Stock Exchange, which investors are likely interpreting as an auspicious sign for the stock's performance on the New York Stock Exchange.
Despite the stock's recent rise, shares are inexpensively valued, trading at 5.4 times operating cash flow -- a discount to its five-year average multiple of 7.2. But it's not only value investors who should keep this mining company on their radars. With a forward dividend yield of 9.5%, it's well worth the attention of those looking to increase their passive income.