Should I buy these two 12%-yielding dividend shares for my Stocks and Shares ISA?

Do these double-digit dividend yielders offer our author the right balance of risk and reward for his Stocks and Shares ISA?

| More on:

I have been trying to build more passive income streams by investing in my Stocks and Shares ISA. Owning dividend shares can hopefully help me get regular money flows I do not need to work for.

At the moment, I can earn a 12% dividend yield from a couple of shares. But are they the right choice for my ISA?

Persimmon

Persimmon (LSE: PSN) is a well-known housebuilder and member of the FTSE 100 share index. Despite that, its stock currently looks unloved. The share price has crumbled 37% in a year and it now yields 12.7%.

That is an unusually high yield. Often when a dividend has a high yield it is a sign of elevated risk. Is that the case at Persimmon?

I think it could be. After all, the economy is slowing and that might push the housing market downwards. Lower selling prices could lead to both revenues and profits falling at housebuilders such as Persimmon. If that happens, the dividend could be on the chopping board.

But, for now at least, demand for housing seems to be robust. Persimmon has been around for decades and navigated its way through the housing cycle quite a few times. If the housing market falls steeply again it may indeed cut its dividend.

Yet given today’s high yield, if it cuts rather than completely cancels the dividend, it may still provide a juicy payout. I see Persimmon’s long experience in the housing market as a strong asset that could help it in years to come. For that reason, I would consider buying this high yielder for my Stocks and Shares ISA.

Diversified Energy

Another firm yielding a similar amount – 12.4% — is gas provider Diversified Energy (LSE: DEC). Although listed in London, the company’s tens of thousands of wells are in the US. Its unusual strategy consists of buying wells nearing the end of their productive life, then squeezing more years out of them.

If it can buy the wells cheaply but sell the gas at market prices, that could be a lucrative model. Indeed, at the moment the company is riding the wave of a booming energy market and paying juicy dividends.

I think the model is interesting – and the double-digit percentage yield certainly catches my attention. But I also see some risks. An obvious one is the next fall in energy prices. If selling prices tumble, that will likely hurt both revenues and profits at Diversified.

I also fear that the clean up cost of wells could turn out to be a big liability. Diversified has increased its focus on that and even acquired a company that specialises in taking wells out of service. But I am still concerned that such wells could prove more costly to wind down than the company expects. For that reason, I do not now plan to add the company to my Stocks and Shares ISA

Risks and rewards in my Stocks and Shares ISA

It may be no coincidence that both these double digit yielders are in cyclical industries, with the risk of dividend cuts that brings. There is no guarantee that the current 12% yield will be sustained for either.

But I have a diversified portfolio and I would consider Persimmon as a possible addition to it.

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 considered so you should consider taking independent financial advice.

Christopher Ruane has no position in any of the shares mentioned. 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

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

With a spare £500 I’d buy these UK shares

A financial services giant, a FTSE 250 distributor, a FTSE 100 tech stock, and a gold miner are on the…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I buy this defensive FTSE 100 stock for growth and returns?

This Fool takes a closer look at a FTSE 100 stock to see if it could boost his holdings via…

Read more »

Young female analyst working at her desk in the office
Investing Articles

I robbed Mr Market of this cheap FTSE stock!

This FTSE 250 stock has crashed by almost 30% in six months. But I recently bought into this battered business…

Read more »

Mature people enjoying time together during road trip
Investing Articles

3 reasons I’m backing NIO shares to soar!

NIO shares have bounced up and down this year. But where will the share price go next? My bet is…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Up 300%, is the Hurricane Energy share price an opportunity too good to miss?

This Fool looks at why the Hurricane Energy share price has soared in the past 12 months. Should he buy…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

The BT share price crashes 20% in a month. Buy now?

The BT share price has crashed by almost a fifth since coming close to £2 on 12 July. After this…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

How I’d invest £1,000 in growth shares today to target £5,000 in a decade

Our writer reckons he could do well by choosing the right growth shares today and holding them in his portfolio…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

How passive income from stocks can speed up early retirement

By investing patiently over the years, buying quality shares has given me enough passive income to retire 10 or even…

Read more »