In the second half of 2021, I repeatedly warned that I expected this year to be a much tougher one for global stock markets. In particular, I expected higher volatility, lower liquidity and wider spreads — all driven by hefty price falls for highly valued US stocks. And though my predictions came to pass, I’ve continued to buy cheap shares in 2022. However, to reduce my risk of loss, most of my buying has been confined to the FTSE 350 index of large-cap and mid-cap UK shares.
So here are two high-yielding FTSE stocks I’d buy now.
1. Rio Tinto (12.3% dividend yield)
I already own shares in FTSE 100 mega-cap Rio Tinto (LSE: RIO), which is one of the world’s leading mining companies. However, the prices of copper, iron ore and other metals have been tumbling from their 2021-22 peaks. Thus, I fully expect Rio Tinto’s latest earnings to take a big dip from the bumper figures it reported in recent results.
Perhaps other investors feel the same way, as selling pressure has crashed Rio shares from their March 2022 highs. Here are this Footsie firm’s current fundamentals:
| Share price | 4,691p |
| 52-week high | 6,343p |
| 52-week low | 4,354p |
| 12-month change | -21.4% |
| Market value | £78.4bn |
| Price/earnings ratio | 4.4 |
| Earnings yield | 23% |
| Dividend yield | 12.3% |
| Dividend cover | 1.9 |
Rio shares are down 26% from their high around four months ago. This has boosted their dividend yield to 12.3% a year — among the very highest on the London Stock Exchange. However, history has taught me that double-digit dividend yields rarely persist for long periods. Either the dividend goes down (by being cut or cancelled), or a rising share price brings the cash yield back down to earth.
For the record, Rio previously cut its dividend payout in 2016 and 2020. Hence, it may well decide to reduce this cash outflow again if future earnings decline. However, even halving this payout would leave it above 6% a year. That’s why I recently bought Rio shares — and I may buy more if the price continues to drop.
Persimmon (13.1% dividend yield)
As one of the UK’s leading housebuilders, Persimmon enjoyed bumper profits during the long run-up in house prices following the end of the global financial crisis of 2007-09. However, with the cost of living soaring and interest rates rising, many pundits expect house-price growth to weaken in 2022-23.
As a result, this FTSE 100 stock has seen its price decline by 40.5% from its 52-week high of 21 July 2021. Following this slump, Persimmon’s dividend yield has leapt to 13.1% — again, one of the highest on offer in London today. Here are the group’s current fundamentals:
| Share price | 1,799p |
| 52-week high | 3,025p |
| 52-week low | 1,717.5p |
| 12-month change | -40.4% |
| Market value | £5.7bn |
| Price/earnings ratio | 7.3 |
| Earnings yield | 13.7% |
| Dividend yield | 13.1% |
| Dividend cover | 1.0 |
Like Rio’s, I suspect that Persimmon’s dividend yield can’t be sustained for much longer. After all, it’s barely covered by trailing profits, with dividend cover down to just one times earnings. Hence, I imagine the board will have to lower this payout at some point. Even so, I’d still buy these shares today, despite my worries about slowing global growth, war in Ukraine and so on!
