Why is the Rio Tinto share price sinking today?

What's going on with this miner's shares today? Let's find out.

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The Rio Tinto Ltd (ASX: RIO) share price is in the red on Thursday morning.

At the time of writing, the mining giant's shares are down 3% to $109.11.

Why is the Rio Tinto share price sinking?

Don't worry, today's weakness isn't to do with commodity price weakness or a bad update.

In fact, the decline in the Rio Tinto share price today could be considered good news for shareholders. That's because it signifies that pay day is coming.

Rio Tinto's shares are falling today after trading ex-dividend for its upcoming interim dividend payment.

When a share goes ex-dividend, it means the rights to the dividend are now locked in.

So, if you were to buy the miner's shares today, you wouldn't receive the dividend. Instead, it would stay with the investor that sold you those shares, even though they no longer have them in their portfolio.

In light of this, a company's shares will tend to fall in line with the value of the dividend on the ex-dividend date. After all, a dividend forms part of a company's valuation. So, new buyers don't want to pay for something that they won't receive.

The Rio Tinto dividend

At the very end of last month, Rio Tinto released its half year results.

For the six months ended 30 June, Rio Tinto reported a 3% increase in underlying EBITDA to US$12,093 million. This was driven by its aluminium and copper segments, which offset weakness in the iron ore segment.

Copper EBITDA increased 67% to US$1.8 billion, aluminium EBITDA was up 38% to US$1.6 billion, and minerals EBITDA was flat at US$700 million. Iron ore EBITDA was down 10% to US$8.8 billion.

This ultimately led to the Rio Tinto board electing to keep its fully franked interim dividend flat at US$1.77 per share. This represents a 50% payout ratio and a total payout of US$2.9 billion.

At current exchange rates, this equates to a A$2.68 per share dividend. Which is the equivalent of a 2.4% dividend yield based on where the Rio Tinto share price ended yesterday's session.

Should you invest?

Goldman Sachs thinks investors should be buying the miner's shares at current levels.

It currently has a buy rating and $136.60 price target on them, which implies potential upside of approximately 25% for investors over the next 12 months.

It also expects a final dividend of US$2.47 per share, bringing its total dividends to US$4.24 (A$6.43) per share. This represents a full year dividend yield of approximately 5.9%.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Goldman Sachs Group. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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