A fantastic FTSE 100 dividend stock that I would buy for long term passive income

Invest in FTSE 100 Dividend stocks offer attractive benefits to those seeking passive income.

With a wide range of companies across industries, Footise offers exposure to established companies with a history of generating consistent cash flows.

Some of these blue chip stocks have the benefit of stable dividends. This makes them attractive choices for investors looking for a second income in the form of dividends.

One such company with a long history of generous payouts to shareholders is Rio Tinto (LSE:RIO), with a current dividend yield of 8.5%.

Supplying the materials the world needs

The second largest metals and mining company in the world is engaged in the production of materials essential to human flourishing and progress. The group’s business segments include iron ore, aluminum, copper and minerals.

Rio Tinto operates in 35 countries around the world and has 52,000 employees. It has been involved in mining for over 150 years.

Moderate financial performance

However, the group’s half-year results underline the ups and downs of life in a complex and multi-faceted industry.

At the end of July, the company reported a 10% drop in half-year revenue to $26.7 billion. Underlying cash profit (EBITDA) fell 25% to $11.7 billion.

In addition, free cash flow fell from $7.1 billion to $3.8 billion, largely due to lower earnings.

Overall performance was impacted by lower core raw material prices and higher costs, offset to a limited extent by higher iron ore sales.

This led the board to propose a $1.77 dividend. Although this is a decrease of 34%, it is nevertheless in line with the policy of paying out 50% of underlying profits.

Healthy shareholder returns

Over the years, however, Rio has remained very consistent with its shareholder return policy.

In fact, over the past seven years, the group has averaged a 60% payout on its common dividend.

This has been made possible by a robust balance sheet that has kept the company in a very healthy position. But a combination of lower profits and related cash flows has increased net debt.

My main concern with lower earnings is the negative impact they have on shareholder returns, especially given that dividends are based on earnings level.

A positive future perspective

All things considered, however, the future looks bright for Rio Tinto in my eyes.

I especially admire the way the group focuses its growth on what the world needs. For example, by cultivating the raw materials that will help stimulate the global energy transition.

To illustrate, the group already has exposure to aluminum and copper and is building up its exposure to lithium.

These raw materials are essential for building products such as solar panels, electric cars and the generation of renewable energy. And all three are increasingly in demand as the energy transition gains momentum.

If management can deliver this growth while maintaining financial strength and resilience by increasing earnings, I believe Rio will continue to provide a lucrative long-term passive income opportunity for income investors like me.

If I had money to spare, I’d buy some stocks in no time!

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