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Can you afford to miss this FTSE 100 10% yielder?

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It’s not often that a FTSE 100 company offers a 10% dividend yield. But I think I’ve found a company that can deliver the goods, and in a moment I’ll take a closer look at this firm.

Before that, I’d like to consider a smaller stock with a 7% dividend yield that looks very cheap to me.

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Gold provides dividend boost

Operating profit at Russian firm Highland Gold Mining (LSE: HGM) rose by 47% to $102.2m in 2017, according to figures released today. Earnings per share climbed 38% to $0.20 per share. 

Shareholders — including Chelsea FC owner Roman Abramovich — will enjoy a total dividend for the year of 10.4p per share, giving the stock a trailing yield of 7.3%.

Profits were helped higher by gold production, which rose by 4.3% to 272,274 oz. last year. The price of gold also improved, with the company reporting a average sale price of $1,162/oz. — a 2.3% increase on 2016.

But these profits are also a return to business as usual, in some ways — the group’s 2016 profits were dented with $22.8m of one-off impairment charges.

Why I’d buy

Highland Gold has a secret weapon — its costs are very low. The group reported a total cash cost of just $507/oz. last year. That’s lower than most rivals, including Africa-focused FTSE 100 miner Randgold Resources, which reported an equivalent figure of $627/oz.

Despite the firm’s low costs and proven ability to generate cash, the stock’s valuation remains very modest. At the last-seen share price of 142p, the stock trades on 9 times forecast earnings and with a 14% discount to book value.

With a 7% dividend yield on tap, I think that’s too cheap. I’d rate the stock as a buy, despite the political risk of investing in Russia.

Earn 10% from the FTSE 100

What about that FTSE 100 stock I mentioned with a 10% yield? The company concerned is coal and steel group Evraz (LSE: EVR).

Although this is a Russian company, it operates facilities in a number of countries around the world, including the US and Canada. I’d guess that this should reduce the likelihood of the firm being targeted by US sanctions, as this would place American jobs at risk.

Evraz shares have trebled in value as the mining market has recovered over the last two years. But with profits still rising, the share’s trailing P/E of 8.1 still looks cheap to me.

Too cheap to ignore?

The main weak spot in the group’s finances is that it carries quite a lot of debt. However, net debt has now fallen from a 2013 peak of $6.3bn to $4bn at the end of 2017. That gives the business a net debt/EBITDA ratio of 1.5 times, which is acceptable.

Now that debt is under control, strong cash generation is being used to fund generous dividends.

Analysts expect profits to double in 2018, putting the stock on a 2018 forecast P/E of 5.4 with a prospective yield of 10%.

The picture is less certain for 2019, when profits are expected to fall. But even then, the shares still look affordable, on a P/E of 8 and a dividend yield of 8%.

I continue to rate Evraz as a buy.

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Roland Head 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.

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