The average dividend yield for FTSE 100 stocks today is 3.45%. But not all stocks hover around this average. Some are serious outliers. At least five dividend stocks have yields above 8%.
Why are miners among the best dividend stocks?
These stocks range across sectors, including consumer goods, property and financials. But the one that stands out is commodities. Industrial metals miners, to be specific. FTSE 100 miners like Evraz, BHP and Rio Tinto are among the three biggest dividend stocks today, with yields of 14%, 10% and 9.5% respectively.
No points for guessing why. Miners have had a particularly good run in the past year as metal prices have rallied. This is seen in their improving financials, which in turn has translated into hefty dividends for investors. Their share prices have risen as well (but not by enough to depress those dividend yields), with significant capital gains for investors.
What can go wrong?
But I would buy these stocks only if the future were to continue looking as good. As of now, there are some reasons to believe that may not happen. China’s public spending contributed in large part to rises in metal prices. However, as the economy recovers from the pandemic, this spending can roll back, resulting in a fall in metal demand.
Further, recovery elsewhere may not be all that it was earlier predicted to be. Some leading forecasters have just reduced their expectations for US growth this year, citing a bigger than expected impact from the Delta variant. Lower growth in the biggest country-economy can impact the rest of the world economy too, because we are all linked through trade and investments.
What can go right?
At the same time, there are arguments to the contrary. China’s growth is showing some initial indications of slowing down. If this continues, the authorities in the country may be forced to keep up with public spending. Also, in the US, a huge infrastructure plan is likely to be implemented. This will keep metals’ demand buoyed. Besides this, growth elsewhere could pick up too. In the UK we are seeing strong signs of an increase in growth. The euro area is growing too, for now.
What I’d do now with these dividend stocks
On balance, I believe that there is a likelihood that miners can stay in a sweet spot for some time. I would be careful about making individual choices among these, however. For instance, BHP is likely to be delisted from the London Stock Exchange next year. And Russia’s Evraz faces increased taxes on exports, which could render it less competitive.
That leaves me with Rio Tinto, a stock I just bought. Its share price has crashed recently after it went ex-dividend, which makes it a particularly good buy right now. I would consider Anglo American now as well, which also has a 6%+ yield and its price also crashed after its dividend cut-off date.
The broad point here is this. Miners look good, and their strong dividend run may well continue. However, for the best returns over time, I would also carefully consider their individual stories.
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Manika Premsingh owns shares of Evraz and Rio Tinto. The Motley Fool UK has no position in any of the shares mentioned. 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.