The Motley Fool

Is this dirt-cheap FTSE 100 stock with 15% dividend yield a good buy for me?

Business development to success and FTSE 100 250 350 growth concept.
Image source: Getty Images

What is not to like about a FTSE 100 stock that is also dirt-cheap and has a massive dividend yield? A fair bit, it appears. The stock in question is the Russian miner and steel manufacturer Evraz (LSE: EVR). For any investor who likes good dividends, it needs no introduction. 

Evraz has an eye-popping dividend yield

The stock has the biggest dividend yield among FTSE 100 stocks right now, a huge 15.5%. And as per recent AJ Bell research, it will continue to reward investors with the high dividend yields even during 2022. Slated to be at an even higher 17.2%, it is followed by BHP at a significant distance, with an expected yield of 10.6%.

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic… and with so many great companies trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. And if you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio.

Click here to claim your free copy now!

Moreover, it has a really low price-to-earnings (P/E) ratio of 7.7 times, compared to 18 times for the FTSE 100 index as a whole. This suggests that its share price could rise over time. That is, unless investors are on to something, and have priced in a correction. 

What could go wrong with the FTSE 100 stock

I suspect that could be the case, considering that prices of industrial metals are forecast to be lower this year compared to last. This is likely to impact their earnings. Besides this, higher taxes on metal companies in Russia could also prove to be a drag on them. 

The stock has other weaknesses too. Its dividends, while impressive, have been inconsistent. The company has cut them four times in the past decade. This to me suggests that more cuts are likely in the near future, especially going by the less than bullish forecast for its earnings. In fact, considering that the company has a dividend cover of 1.3 times, which is already low, if its earnings fall it will quite likely be unable to sustain these payouts. In other words, as an investor in the stock, not only should I brace for a lower dividends from the stock, but also a continued muted share price. 

The upside

There could be other reasons to buy the stock, though. If the recovery picks up pace, commodity companies might still be gainers. Also, the stock’s price has fallen from the steep highs we saw earlier last year. So, if I expect an improvement in its prospects, this might be a good time to buy it before the stock starts rising again.

In fact, analysts’ estimates compiled by the Financial Times show an expected 7.4% increase in its share price over the next year. Some of the more optimistic analysts even expect a huge 67.4% increase in it! These are subject to change, of course, as the conditions around us evolve. But they do indicate the potential trajectory for the stock.

What I’d do

I have already bought the stock, and it has given me no reason to complain so far. But I am not sure I want to buy more of it right now. I would like to wait for its next update and its outlook to get a better sense of where the stock might head over the next year. In the meantime, I’m considering buying these stocks. 

5 Stocks For Trying To Build Wealth After 50

Markets around the world are reeling from the coronavirus pandemic…

And with so many great companies still trading at what look to be ‘discount-bin’ prices, now could be the time for savvy investors to snap up some potential bargains.

But whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times.

Fortunately, The Motley Fool is here to help: our UK Chief Investment Officer and his analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global lock-down…

You see, here at The Motley Fool we don’t believe “over-trading” is the right path to financial freedom in retirement; instead, we advocate buying and holding (for AT LEAST three to five years) 15 or more quality companies, with shareholder-focused management teams at the helm.

That’s why we’re sharing the names of all five of these companies in a special investing report that you can download today for FREE. If you’re 50 or over, we believe these stocks could be a great fit for any well-diversified portfolio, and that you can consider building a position in all five right away.

Click here to claim your free copy of this special investing report now!

Manika Premsingh owns shares of Evraz. 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.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.