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Why I think this 10%-yielding FTSE 100 dividend stock could have you laughing all the way to the bank

There’s no denying we’re going through a bad spell for FTSE 100 share prices, with the index down 4% over the past 12 months, and managing a gain of only 5% over five years (which is way behind inflation). And even then, that’s been partly offset by the fall in the value of sterling — in dollar terms, Footsie shares have performed considerably worse.

You know what I do when such thoughts start to depress me? I glance over my retirement portfolio account and look at all the lovely dividends that are coming in regularly. Wherever share prices themselves are going, UK shares are still providing investors with very attractive dividends, and I see some very tempting ones offering yields of 10% and better.

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Top yield

I don’t have its shares, but Taylor Wimpey (LSE: TW) is very high on my list of possible buys, with its forecast total dividend yield of 12% (though I do have some Persimmon shares on a similar yield). The share price itself has been volatile over the past few years, roughly keeping track with the FTSE 100 but with much bigger ups and downs.

It’s all down to cooling house prices and the feared effect Brexit might have, but I see such worries as seriously overblown. The thing is, house builders don’t need rising house prices to make money. They really just need a healthy difference between house prices and land prices, and guess what happens to land prices when house prices fall? Yes, they drop too.

And one thing Brexit is definitely not going to do is end the UK’s chronic housing shortage.

Taylor Wimpey’s first-half results were impressive, with chief executive Pete Redfern telling us that “conditions for the housing market continue to be supportive with good affordability and access to finance,” and adding that full-year results should be in line with expectations.

A forward P/E multiple of just seven makes Taylor Wimpey shares look way too cheap to me.

Another 10%

Smoking the noxious weed is out of fashion, but vaping seems to be catching on, and I see tobacco companies as increasingly overlooked. Imperial Brands (LSE: IMB) shares have fallen 20% in five years — and if you’d been unfortunate to buy around the peak three years ago, you’d be nurturing a loss of nearly 50%.

That’s over a period when earnings have been rising steadily, with modest but solid 4% EPS growth on the cards for this year and next. The result is another share on a P/E of only about seven, which is around half the Footsie’s long-term ‘fair valuation’ level.

Dividends are still rising progressively, and while that’s been happening, another effect of the falling share price has been to boost yields. This year’s forecast dividend would yield 10%, with 2020’s rising to 10.6%.

The company itself seems to think its shares are too cheap, and since July it’s been on a repurchase spree that’s expected to reach £200m.

If valuation alone is not enough, there’s a potential future direction for Imperial that could prove lucrative, and that’s cannabis. The company has already been dipping its toe in the water, and could be setting itself up nicely for the ongoing wave of legalisations that seem likely to spread.

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Alan Oscroft owns shares of Persimmon. The Motley Fool UK has recommended Imperial Brands. 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.