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Should you buy or sell these 5%-yielding FTSE 100 dividend stocks?

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It’s that time of year when those holding stocks and shares ISAs frantically scour the market for last-minute additions to their portfolios. To help individuals on their quest I’ve picked out a few great dividend payers to load up on today, including several big income stocks from the FTSE 100.

One from Britain’s elite share index I wouldn’t recommend buying right now is Rio Tinto (LSE: RIO). Instead, I’d implore those holding the mining giant to sell out as the red flags over a possible iron ore price collapse next year are becoming ever-more vivid.

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Major producers of the steelmaking material all over the globe are supercharging production from their assets and this is prompting worries of a sizeable and sustained supply glut over the medium- to long-term periods.

Bravo, Rio?

These fears have been there for years so, arguably, the biggest near-term threat to iron ore prices are signs that Chinese economic deceleration is gaining momentum. Latest manufacturing PMI numbers released overnight showed the rate of contraction unexpectedly worsened in January to 49.2, the lowest reading since March 2016.

City brokers are right now expecting Rio Tinto to record a 7% earnings rise in 2019 before those aforementioned supply booms cause the bottom line to slip 11% in 2020. Investors need to be prepared for downgrades to forecasts for this year and next given the surprising pace of China’s cool down as iron ore prices threaten to subsequently slide.

Given the strong possibility that brokers will slash their earnings expectations this year and next, I’m not tempted by Rio Tinto’s low forward P/E ratio of 10.6 times. Nor am I won over by its bulging 5.5% dividend yield. In my opinion the company carries far too much risk right now and there’s no shortage of safer dividend picks on the FTSE 100 that I’d rather buy today.

A superior selection?

Is Royal Bank of Scotland (LSE: RBS) a better bet for those seeking big dividends from the Footsie? A recent report from Moody’s on the health of the British banking sector suggested it could possibly be.

RBS remains cheap as chips because of fears concerning Brexit and how this will impact its financial strength and profits picture, with the firm dealing on a forward P/E multiple of just 9.6 times.

Moody’s, though, suggested investor fears may be overblown as “UK banks have comfortable capital positions and robust liquidity buffers” in response to years of regulatory scrutiny over the strength of their balance sheets. The ratings agency said that even under a worst-case no-deal Brexit scenario, it expects the banks to keep producing profits.

But that also came with one crucial caveat. Moody’s also said that in the latter scenario, the banking sector would remain profitable “albeit weakly so.” And this causes me to ask the question. Why anyone would want to take a gamble on a stock that could create modest profits when there’s so many other income stocks with better earnings outlooks?

Forget RBS’s low rating and 4.6% dividend yield, I say. In fact, I’d be tempted to sell, given the growing storm clouds facing the British economy.

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Royston Wild 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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