The 5 highest-yielding FTSE 100 shares I’d buy today

Roland Head explains why he thinks these unloved FTSE 100 (INDEXFTSE: UKX) dividend stocks deserve a buy rating.

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The FTSE 100 currently has no fewer than 11 stocks with forecast dividend yields of 7% or more.

However, I believe some of these payouts are likely to be cut in the next couple of years. So in this article, I’m going to look at the five highest-yielding FTSE shares that I’d buy today.

A rare 14% yield

I’m going to start with a company with a pretty extreme valuation. Shares in Russia-based coal and steel group Evraz boast a 2019 forecast dividend yield of 14%.

This payout is expected to fall to 11.7% next year, but as I explained recently, I think there’s a good chance these payouts will be affordable and backed by surplus cash.

For risk-tolerant investors, I think Evraz could be an opportunity. I’d be happy to take a modest position. But this isn’t a stock I’d bet the farm on.

My biggest holding

The biggest holding in my own portfolio is UK-based insurance group Aviva. I’ve held the stock for a number of years, during which time I’ve enjoyed a very generous stream of dividends.

Under previous CEO Mark Wilson, Aviva’s finances were strengthened and its cash generation improved. New boss Maurice Tulloch is now taking steps to try to return the group to growth. This could see the company slimmed down and given a more focused structure.

I’d welcome this, but in the meantime, I’m happy to continue holding AV shares, which offer a 2019 forecast dividend yield of 7.3%.

A smoking 7.3% yield

Another stock that’s hated by the market but generating a lot of cash is British American Tobacco. This FTSE 100 group owns brands such as Dunhill, Lucky Strike and Camel. The big problem facing groups such as BATS is whether they’ll be able to create new products to compensate for the long-term decline of smoking.

This isn’t an immediate issue — it made an operating profit of £9.3bn on sales of £24.5bn last year. But I believe it is a real risk. Another concern is that growing numbers of investors are avoiding tobacco stocks due to ethical concerns.

However, the company’s high profit margins and strong cash generation mean that at present, the 7.3% dividend yield looks sustainable to me.

A banking bargain?

Although it’s still part-owned by the government, Royal Bank of Scotland Group has returned to profitability and is steadily becoming more profitable.

Dividend payouts have been restarted and management is willing to make extra one-off payouts where possible too. This year is a case in point — the stock offers a 2019 yield of 10.4%.

Forecasts for 2020 point to a dividend yield of 6.9%, which I think will be more typical. The stock is heavily exposed to the UK economy, but I think it offers good long-term potential.

Building dividends

I’m wary about investing in housebuilders at the moment, as I think some firms are paying unsustainable dividends and look expensive.

However, I’d feel fairly comfortable investing in Barratt Developments, which I think is more reasonably priced. I also like the group’s 10-year track record of five-star HBF ratings — few of its rivals can match this measure of customer satisfaction.

BDEV shares currently offer a dividend yield for 2019 of 7.1%. This payout should be covered 1.6 times by earnings, providing some protection if profits dip in 2020. Profits aren’t expected to fall at the moment, but at this point I think it pays to be cautious.

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 assessed. Consider taking independent financial advice.

Roland Head owns shares of Aviva and Royal Bank of Scotland Group. 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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