Should I Invest In Rio Tinto plc (ADR) (RIO)?

So Rio has become something of a turnaround proposition within the broader frame of its cyclical nature. If commodity prices hold up from here, and if the new management team can deliver on its recovery plan, the outlook for investor total returns could be promising.

Rio Tinto’s total-return potential
Let’s examine five indicators to help judge the quality of the company’s total-return potential:

1. Dividend cover: adjusted earnings covered last year’s dividend just over three times. 4/5

2. Borrowings: net gearing around 33% with net debt around 90% of adjusted earnings.4/5

3. Growth: revenue, earnings and cash flow have all been bumpy. 1/5

4. Price to earnings: a forward eight or so compares well to earnings and yield forecasts. 4/5

5. Outlook: weaker recent trading and a cautiously optimistic outlook. 3/5

Overall, I score Rio 16 out of 25, which makes me cautious about the firm’s potential to out-pace the wider market’s total return, going forward.

Foolish Summary
Under-control borrowings and a well-covered dividend are obvious positives. Volatile commodity prices and rising costs have delivered a patchy business-growth record but the valuation reflects such issues. Having new management with a recovery plan makes the optimistic outlook sound convincing. All of which encourages me to believe that, yes, I should invest in Rio Tinto plc (ADR) (NYSE:RIO) (LSE:RIO).

The article Should I Invest In Rio Tinto? originally appeared on Fool.com and is written by Kevin Godbold.

Kevin Godbold has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.