Monty Rakusen/DigitalVision via Getty Images Rio Tinto (NYSE:RIO) and BHP (BHP) are two leading diversified global mining companies that boast stellar balance sheets and attractive dividend yields. In this article, we will compare them side by side and share our view on which one of these we would rate a buy at the moment. RIO Stock Vs. BHP Stock: Portfolios Rio Tinto is diversified across four main sectors, with its main one being iron ore. It has some of the lowest cash costs in the industry, and its operations are supported by fully integrated supply chain and transportation systems. Moreover, they are located close to key Asian markets, providing an advantage. Rio Tinto also has a substantial and growing copper portfolio as part of its pivot toward the electrification trend in the global economy. The majority of its current copper production comes from its 30% stake in the Escondida mine, which is the world’s largest copper mine and also towards the low end of the cost curve. This once again gives Rio Tinto some operating cost advantages. The rest of its portfolio consists of aluminum, including its oxide and alumina production operations, as well as its minerals portfolio. This portfolio includes relatively small exposure to numerous minerals such as sands, borates, salts, and diamonds. In contrast, BHP also has a competitively cost-positioned iron ore and copper production business. However, unlike Rio Tinto’s focus on aluminum and related operations, BHP is a core producer of coal. This positions it at the other end of the spectrum in terms of long-term trends, as the global economy gradually shifts towards electrification and cleaner energy, moving away from the consumption of coal. Finally, BHP’s portfolio is rounded out with a struggling nickel business and a fairly recent entry into the potash segment. Overall, both portfolios are quite strong and well-diversified, but we give Rio Tinto a slight edge due to its focus on materials that are likely to see demand increase in the future. RIO Stock Vs. BHP Stock: Capital Allocation Additionally, we favor Rio Tinto’s capital allocation policy as it has placed a greater emphasis on dividends and buybacks over the years compared to BHP’s capital allocation track record. Additionally, Rio Tinto currently boasts a higher dividend yield of 6.3% expected over the next 12 months, compared to BHP’s 5.1% expected dividend yield over the next 12 months. We think that Rio Tinto’s disciplined emphasis on consistently paying out dividends has helped contribute to its long-term significant outperformance, as seen in the chart below. Data by YCharts Since both have traded publicly since the mid-1990s, Rio Tinto has delivered a 2,010% return compared to BHP’s 676.1% total return. As a result, Rio Tinto has generated roughly three times the long-term total returns of BHP, and over the past 10 years, Rio Tinto has also significantly outperformed with a 166.2% total return compared to BHP’s 100.9% total return over that decade. Data by YCharts It is also interesting to note that Rio Tinto has been a more disciplined issuer and repurchaser of its own shares in recent years relative to BHP as demonstrated in the chart below: Data by YCharts As a result, we think that management’s focus on returning large amounts of capital to shareholders has forced it to be more disciplined in the allocation of capital. This is essential when dealing with a large and diversified mining business, where it can be easy to engage in empire-building or pursue projects that lead to less-than-stellar shareholder returns. The final reason why we prefer Rio Tinto’s capital allocation policy over BHP’s capital allocation policy right now is that Rio Tinto appears less likely to chase aggressive acquisitions. BHP’s recent failed aggressive attempt to acquire Anglo American (OTCQX:AAUKF) and its eagerness to pay up for growth highlight this risk. Meanwhile, Rio Tinto has been strategically investing in numerous technologies, including a multi-year partnership with Palantir (PLTR), which should improve its efficiencies and long-term profitability. Risks It is also important to mention that both of these companies face significant China risks, as China is a major consumer of their iron ore and copper products. As a result, if China’s economy continues to slow or if the Chinese Communist Party engages in foreign aggression that results in sanctions on its economy, both Rio Tinto and BHP are likely to suffer significantly. Additionally, if the global economy enters into a downturn, even apart from problems unique to China, it will also likely hurt demand for these businesses. As a result, they are quite economically sensitive. Investors should keep this in mind when considering investments in these companies. Investor Takeaway When taking into account Rio Tinto’s significantly better total return track record, higher current dividend yield, slightly better-positioned portfolio for the long-term, greater capital discipline, similarly strong balance sheet, similarly competitively positioned assets, and the fact that it trades at slightly lower earnings and EBITDA valuation multiples relative to BHP, we rate Rio Tinto as a buy at the moment, whereas BHP is just a hold. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
sekar nallalu AAUKF,BHP,BHPLF,Cryptocurrency,NGLOY,RIO,RTNTF,RTPPF,Samuel Smith Rio Tinto Vs. BHP: Only One High-Yield Miner Is A Buy (RIO)