Rio Tinto (ASX:RIO) Drops 3% Despite Record Copper Output: Is This a Buying Opportunity for Income Investors?

Rio Tinto’s FY2025 Result: What Income Investors Should Know

Rio Tinto (ASX: RIO) dropped 3.1% to A$163.30 on Friday after its FY2025 results did not impress investors. Underlying earnings were flat at US$10.9 billion, while net profit fell 14% because expenses from the US$7.6 billion Arcadium Lithium acquisition reduced overall profit. However, we think the market reaction overlooks the bigger picture. Behind the main figures, Rio Tinto is steadily creating a stronger, more diversified company, and its dividend appeal alone deserves closer attention for long-term income investors seeking returns.

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Copper’s Breakout Changes the Story for Rio Tinto

For years, Rio Tinto has essentially been an iron ore company. That is starting to change. Copper EBITDA more than doubled to US$7.4 billion this year after production hit a record 0.9 million tonnes. At the same time, iron ore earnings fell 11% as prices softened, showing exactly why this diversification matters.

What makes this shift significant is the timing. Group revenue still grew 7% to US$57.6 billion, and EBITDA rose 9%, even with iron ore dragging. Five years ago, a dip in iron ore prices would have hit the entire business hard. Today, copper is picking up the slack, and the Arcadium Lithium acquisition adds another growth leg in a market expected to triple in size over the next decade.

In our view, this is the most important takeaway from the results. Rio is becoming a genuinely diversified miner, and investors who only look at the iron ore numbers are missing the transformation happening underneath.

The Debt Question Income Investors Need to Watch

The acquisition spree has not come free. Net debt jumped to US$14.4 billion, well above where it sat a year ago, after Rio also spent US$11.4 billion on major projects, including the Simandou iron ore mine in Guinea.

However, there is some comfort in the numbers. Operating cash flow increased 8% to US$16.8 billion, which was more than enough to fund the US$6.5 billion paid to shareholders as dividends. The company has now kept its 60% payout ratio for ten years in a row, one of the most reliable dividend records on the ASX. At the current share price, that equals a yield of around 4%.

The main risk is that higher debt reduces flexibility. If commodity prices fall across the market, management may have to choose between investing in growth projects and protecting the dividend. For now, we believe the dividend looks secure, but investors should continue to monitor debt levels and commodity trends closely.

The Investor’s Takeaway for Rio Tinto

At A$163.30, Rio Tinto trades above the analyst consensus target of around A$151, which suggests much of the near-term upside is already priced in. The collapse of merger talks with Glencore in early February removes any takeover premium, but it also refocuses management on delivering results rather than chasing mega-deals.

For patient income investors, we believe Rio Tinto offers a solid combination of yield and long-term growth potential that few ASX stocks can match. It is not a screaming buy at these levels, but the 4% yield, consistent payout history, and copper-led transformation make it worth holding for those who can ride out short-term noise. Watch copper prices and the Simandou ramp-up over the coming quarters as the key catalysts that could turn recent prices into a genuine bargain.