Could these FTSE 100 stocks sustain their double-digit dividend yields?

The FTSE 100 stocks have paid windfall dividends to investors like this Fool in the past year. But can the party continue?

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

sdf

There are three FTSE 100 stocks that offer double-digit dividend yields at present. These are the industrial metal miners Evraz, BHP, and Rio Tinto. It is no coincidence, of course, that all three are miners. Commodity stocks have enjoyed an unexpected boom in the past year, as Chinese government stimulus encouraged metal demand despite a raging pandemic. 

Cooling-off in commodity boom

However, exactly because of the nature of this commodity boom, I find myself asking if these eye-watering dividend yields are sustainable. I mean, the stimulus is now being rolled back. This is partly to cool off the high commodity price inflation that could wreak havoc over time if not brought under control now. Lower demand for commodities means they will realise lower prices and that is likely to hurt miners’ bottom lines. 

Both Evraz and Rio Tinto are expected to give dividend yields of 18% to investors this year. It is great for now, of course, but going by the correction expected in the near future I am unsure if this can continue. And I really want to assess this because I have bought both stocks. Figuring out the returns in the next couple of years is important for me, to know what to do next with these investments. Note that here I exclude BHP from the discussion because it is due to get de-listed from the London Stock Exchange shortly. 

Individual issues holding these FTSE 100 stocks back

Besides the commodity price challenge, individual issues have emerged for the both of them as well that could hold back their progress in the foreseeable future. For instance, Rio Tinto has reported a drop in production in the third quarter of this year. As a result, it has also reduced its production guidance. Evraz has seen a spate of increased taxes in its home country, Russia, which is likely to impact its financials as well. 

Why dividend yields can still stay high

These are disappointing signs for the two stocks. But there is another side to the story as well.

Reduced prospects could bring their share prices down, for sure. But since dividend yield is the dividend amount as a percentage of the current share price, their yields could still continue to look good. It all depends on how their dividends change relative to the share price. Even if we assume that dividends will fall, as long as the share price falls even more, the dividend yield may still remain elevated.  

Also, the global economy is recovering. That means commodity demand could still stay strong even if China loses steam. And a correction in metal prices is not the same as a slump. It only means that they are declining from their recent scorching highs. So, I think there is still much to look forward to for the miners.

Moreover, both Evraz and Rio Tinto have offered good dividend yields in the past. For Evraz, the five-year average yield is also at 10%+ rates, while that for Rio Tinto is 6%+. 

What I’d do

I am not too worried about these companies’ dividend yields. Even if their double-digit yields decline, I reckon they could still continue to pay me good dividends. 


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.

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.

More on Investing Articles

Portrait of pensive bearded senior looking on screen of laptop sitting at table with coffee cup.
Investing Articles

7.5x earnings, £80.2m in net cash, and a big yield… what’s not to like about this UK stock?

This UK stock has a really strong net cash position relative to its size and its other metrics are very…

Read more »

Two male friends are out in Tynemouth, North East UK. They are walking on a sidewalk and pushing their baby sons in strollers. They are wearing warm clothing.
Investing For Beginners

My daughter could earn a £75,000 second income because we started an ISA at birth

Earning a second income is a dream for many Britons. By leveraging time, investors could make it a reality for…

Read more »

Portrait of a boy with the map of the world painted on his face.
Investing Articles

Could this trigger a stock market crash?

Dr James Fox takes a closer look at an alarming trend in the Far East that could have consequences for…

Read more »

UK financial background: share prices and stock graph overlaid on an image of the Union Jack
Investing Articles

What’s happening with the Jet2 share price?

The Jet2 share price has lost momentum after the tour operator said that customers were leaving their bookings to the…

Read more »

Abstract bull climbing indicators on stock chart
Investing Articles

Could the Chancellor’s Leeds Reforms trigger a bull market for UK stocks?

More competitive lending and greater interest in shares could help kick start growth for UK businesses. But could it also…

Read more »

Concept of two young professional men looking at a screen in a technological data centre
Investing Articles

I think this AI stock could double before Palantir

Palantir stock is up almost 100% this year. As a result, it now sports a market cap of $350bn meaning…

Read more »

Elevated view over city of London skyline
Investing Articles

As the FTSE 100 hits an all-time high, is it time to reconsider the S&P 500?

Christopher Ruane explains why a surging FTSE 100 has not yet made him focus more on the potential of S&P…

Read more »

GSK scientist holding lab syringe
Investing Articles

The FTSE 100 sits at a record high. But some stocks still look dirt cheap!

The usually sluggish FTSE 100 is having a surprisingly good year. But our writer feels there are still potential bargains…

Read more »