Are Rio Tinto shares the perfect income stock? Or is it time to sell?

first_imgAre Rio Tinto shares the perfect income stock? Or is it time to sell? I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement. Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we’re offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our ‘no quibbles’ 30-day subscription fee refund guarantee. Rio Tinto (LSE: RIO) shares have recovered strongly from their recent lows. In fact, the mining company has risen by nearly 60% from the middle of March, and its current share price is higher than at the start of the year.With a dividend yielding over 6%, it’s also one of the largest dividend payers on the FTSE 100. At this time of mass dividend cuts, it’s no surprise many investors have bought. But with potential problems on the horizon, and an expensive valuation, is it time to cash out?5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…And if you click here we’ll show you something that could be key to unlocking 5G’s full potential…Recent trading updateRio Tinto’s first half underlying earnings were only down 4%, demonstrating the stock’s resilience. This was driven by the sale of iron ore, accounting for 90% of first-half profits. Iron ore has performed strongly, mainly due to Chinese demand and supply constraints. Consequently, its revenues rose 2% over the first half of the year.Less positive news came from the other divisions. In fact, weak global demand for aluminium saw revenues in this division fall by 12%. The period was particularly challenging for diamond sales too, seeing a decline of nearly 40%. As such, it seems clear the miner is reliant on iron ore prices remaining high. A drop-in demand would therefore have severe ramifications for Rio Tinto shares.Problems could be on the horizonThe company recently revealed two Aboriginal Australian caves were blown up in May to access an extra 8m tonnes of iron ore. Rio Tinto admitted it missed key opportunities to prevent damage to one of country’s most significant heritage sights.Although the blasts weren’t deemed illegal, I believe this could still lead to a number of problems. Firstly, there’s the reputational damage. For example, one of the Rio Tinto shareholders, AustralianSuper, has already said “Rio Tinto’s actions are totally unacceptable.” As a result, its already expensive shares could take a hit.In addition, this incident may make it particularly hard to gain consent for new mines. Future profits could therefore be strained as capital expenditures are forced to increase. Although Rio has confirmed there won’t be any impact this year, it’s reviewing the longer-term implications.Are Rio Tinto shares the perfect income stock?While I do have concerns about Rio Tinto shares, there’s no doubt it pays a very strong dividend. This is the one aspect that attracts me to the stock. Firstly, a yield of over 6% is very impressive, especially as nearly half of FTSE 100 companies have cut or cancelled dividends. The dividend also looks safe due to a cover of 1.6. As a result, a cut doesn’t seem imminent. Nevertheless, if future profits are hit, such a high payout may be unwise. As a result, I’d be wary of the dividends’ long-term future. For investors looking for good income stocks, there are plenty of companies with better growth prospects. I’d therefore avoid Rio Tinto shares. Our 6 ‘Best Buys Now’ Shares I’m sure you’ll agree that’s quite the statement from Motley Fool Co-Founder Tom Gardner.But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.What’s more, we firmly believe there’s still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.And right now, we’re giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool. Stuart Blair | Monday, 10th August, 2020 | More on: RIO Stuart Blair has no position in any of the shares mentioned. 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.center_img Enter Your Email Address See all posts by Stuart Blair “This Stock Could Be Like Buying Amazon in 1997” Simply click below to discover how you can take advantage of this. Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge! Image source: Getty Images. last_img read more