It sounds incredible right now that a FTSE 100 stock has a dividend yield of 53%! What could be better than knowing that I would earn half my invested capital back in a year’s time? Well, maybe the knowledge that the company in question would in fact continue to pay dividends. In this article, that is the key question. Can the stock continue to give me bumper dividends?
Why has the dividend yield risen so much?
No points for guessing the stock I am talking about. It is the miner and steel manufacturer Evraz (LSE: EVR). It has had the highest dividend yield among all FTSE 100 stocks for a while, but recently its yield went through the roof. This might sound like a positive, but it has happened under very difficult circumstances. The company is based in Russia. As its home country attacked Ukraine last week, its price plunged, although it had been falling even before that. Its share price has now almost halved from a year ago.
Now, dividend yield is the dividend amount as a percentage of the current share price. It follows that if the share price declines sharply, dividend yield increases quite a bit. And that is exactly what has happened in the case of Evraz. Without any change to its dividend, its dividend yield suddenly looks unbelievable.
Can the FTSE 100 stock sustain the yield?
However, the yield could stay this elevated if the stock price remains low while its dividend is sustained through this time when Russia is at war with Ukraine. I think it is quite likely that the company’s share price will remain quite subdued for now. It has operations in Russia, which is facing sanctions, but it also has interests elsewhere in the world, including production sites in the U.S. and Canada. These could potentially face challenges as well if the situation becomes even bigger. We really do not know which way the tide will turn, but from what I can see, the signs do not look good.
If Evraz’s operations are impacted, it is only a matter of time before its dividends are cut significantly too. Already, 2022 was expected to be a year of moderation for miners that had seen a big profits during the year before. So, I think we can expect smaller dividends from the company, though it is possible that its low share price will continues to keep its dividend yield elevated.
What I’d do
I own shares in Evraz, and it had been a good stock to hold for a while, as its performance was strong. Now of course, my holdings are in the red. If peace returns quickly enough, I think it could bounce back. However, for now, we do not know what will happen next. And as I was saying earlier, the signs do not look good. I am holding on to whatever I own of the stock, but will avoid buying any more for now till the situation becomes clearer.
