These FTSE 100 dividend stocks pay more than Lloyds Bank but are they worth the risk?

Lloyds Banking Group plc (LON:LLOY) cash returns are lower than some index peers, but chasing higher payouts can be risky. Here’s my take on three high-yielders.

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Recent numbers from retail investors’ perennial favourite Lloyds Bank (LSE: LLOY) were never likely to generate much joy.

Notwithstanding this, the ending of the PPI saga could mark a turning point for the bank’s fortunes, assuming we don’t experience a widespread capitulation in the markets in the near future. What’s more, the company currently yields a juicy 6%. 

But Lloyds certainly isn’t the only gig in town for income hunters. Indeed, a number of its index peers are scheduled to return even more at the current time. Here are three examples.

Bigger yields…but worth the risk?

Shares of oil giant Royal Dutch Shell (LSE: RDSB) have been under the cosh lately after the company revealed a 15% decline in profits in Q3 thanks to a weakening global economy and falling oil price. This reaction from investors has had a knock-on effect of increasing the yield, which now stands at 6.1%. But is this sustainable?

Like all companies, Shell faces its fair share of challenges. Aside from having no control over the price of black gold, the shift towards renewable energy has forced the £187bn cap to revise its long-term strategy. That necessitates investment which, in turn, impacts on profits, at least for a while.

Having said all this, it would be quite an event if Shell decided to cut its dividend. It’s not done so since the Second World War. As such, I think the shares — which currently change hands for 13 times forecast earnings — are still worth grabbing.

Next up is insurer and asset manager Aviva (LSE: AV). In contrast to Shell, its share price has bounced back to form recently, rising a little over 20% since September.

Let’s not get carried away, though. The firm’s value is still far below what it was a few years ago. The election of Jeremy Corbyn as PM could also put a swift end to this recent bounce, such is the fear that financial institutions have of a Labour government. On the flip side, the stock changes hands for just 7 times earnings, suggesting that a lot of negativity may already be priced in. 

A total dividend of 31.3p per share in FY19 gives a monster yield of almost 7.3%, covered 1.9 times by profits. That last point makes Aviva look a safe pick for those looking to generate a second income stream from their capital, regardless of whether it’s used to top up the State Pension or reinvested back into the market.

A final stock controversially paying out more than Lloyds Bank is BT (LSE: BT-A). I say this for the simple reason that the City remains surprised that new CEO Philip Jansen has chosen not to take a knife to the payout just yet. That’s despite the company still having a huge pension deficit to contend with, infrastructure to maintain, regulatory headaches and increased competition (it recently lost the contract to run Virgin Media’s mobile service to rival Vodafone). 

Whether Jansen’s strategy proves inspired or reckless remains to be seen. Personally, I think it’s just delaying the inevitable. For now, BT yields 8.2% and its shares trade on just under 8 times predicted earnings.

Buying stock when it’s most hated can sometimes prove very profitable. Of the three income-generating alternatives to Lloyds mentioned today, however, BT is the one I’m least bullish on as things stand.  

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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