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9%+ dividend yields! Should I buy these ‘cheap’ FTSE 100 stocks?

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There are very few FTSE 100 stocks that have dividend yields of 9%. Occasionally, for those that do have yields this high, it = implies that the stock is too cheap and is likely to rise over the next few years. On the other hand, it can also signal low or negative growth, and a lack of investment in the company. So, what do I think about the following 9% yielding UK shares?

A new FTSE 100 stock

In October 2019, Prudential demerged M&G (LSE: MNG), giving it a premium listing on the London Stock Exchange. Accordingly, this fund manager has a limited track record as a listed business. And its first two years on the index have not been overly successful with it down over 10% since it joined the Footsie.

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But there are many reasons why MNG looks like a bargain FTSE 100 stock to me. The dividend is the main factor. This year’s dividend totalled 18.33p per share, equivalent to a yield of 9.2% at current prices. For the time being, it also looks sustainable. This is because the company has cash and liquid assets of £1.7bn, despite the dividend only costing around £500m per year. The company’s profits are also able to cover the dividend. This makes the dividend seem very appealing and is a reason why I’m tempted to buy.

M&G also trades at a very low price-to-earnings ratio of around 8 times expected 2021 earnings, indicating an extremely cheap valuation. But I feel that the shares are currently being held back by a few problems. For example, although assets under management have been able to grow to £370bn, it said in its recent trading update, this was lower than expectations. Net outflows were also £3.4bn in the retail asset management sector, signalling negative growth in this area.

Despite this, recent fund launches such as the Planet+ range, which aims to be environmentally conscious, will hopefully attract new customers. This means that, alongside the appeal of the 9% dividend, I’m seriously considering buying M&G shares.

A tobacco giant

The other FTSE 100 stock offering a 9%+ dividend yield is Imperial Brands (LSE: IMB). The last five years for this tobacco giant have not been pretty, with the shares down over 60%. This is mainly due to the regulatory pressure that has faced the company. But it has still managed to deliver strong financial results, as demonstrated in the recent trading update.

For the first half of 2021, Imperial reported adjusted profits of nearly £1.6bn, a rise of 8.6% from last year. The dividend was also raised 1%, which if maintained, would give the shares a current yield of 10.5%. This makes it the current highest payer in the FTSE 100.

But although such a high yield is difficult to resist, I’m staying away from Imperial shares. This is because of the risks that it faces. They include the chance that profits could be hit by further anti-smoking regulations and that its “next-generation products”, such as e-cigarettes, don’t deliver as much growth as hoped. The company remains heavily reliant on traditional tobacco products, which I view as a negative growth industry. Therefore, even the incredibly high dividend yield, and the low P/E ratio of 7, doesn’t tempt me to buy this stock.

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Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has recommended Imperial Brands and Prudential. 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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