If there is one thing that a good Fool like myself enjoys, it is the sight of a juicy high-dividend-yield stock. In an environment here in the UK where interest rates are low (with little reason to think they will rise sharply anytime soon), finding places to put your hard-earned cash to work can be hard.
With £2,000 to invest, a basic bank savings account probably pays you less than 1% for holding your funds there. A Cash ISA is unlikely to offer you over 2% (probably a lot less). This makes investors look elsewhere, for example, towards stocks.
While there is an increased risk of your capital being at risk due to the volatility of the underlying share price, you can invest in a stock that pays you an attractive dividend. You can establish the yield if you divide the dividend by the price of the stock.
The average dividend yield across the FTSE 100 is around 4.5%. You can already see the potential for you to invest your £2,000 and achieve a higher rate of payout than the alternatives mentioned above. But what if I told you that the highest dividend-yield stock currently is offering just under 16%?!
Who? What? Why?
It sounds like something we should look into. To start with, the company is Evraz (LSE: EVR). It is a Russian mining company that is headquartered in London and has extensive operations ranging from steelmaking to iron ore and coal production. It is a truly global business, and while most of the firm revolves around Eastern Europe, there are operations in the US and South Africa too.
By the time you process and go through ownership of linked subsidiaries and group control, the largest beneficial stakeholder and owner is a certain Roman Abramovich. The owner of Chelsea Football Club is probably better known by the public for his sporting acquisitions, but Evraz is certainly the means to pay the bills.
One of the reasons the dividend yield for Evraz is so high at the moment is due to the share price falling. It is around levels we have not seen since 2017, trading around 360p per share. Thus, as the dividend being paid has not changed, this boosts the dividend yield due to the lower share price.
Just a moment though — what if Evraz cut the dividend? This is a very valid point, and one that does concern me. The dividend cover is only 1.1, which is really not promising. This means earnings per share are only slightly above the dividend per share, and thus could really mean that the dividend is under threat and likely to be cut.
Therefore, while this dividend yield does seem very appealing, be aware that due to Evraz having a downturn in earnings, this has pushed the share price lower. Should the dividend indeed be cut, the yield will not look as attractive.
Does that make those Cash ISAs or bank savings accounts seem more attractive? Not really. An ultra-high yield like that of Evraz might be a red flag, but there there is still that roughly 4.5% you could achieve through buying a simple FTSE 100 tracker fund. And there are also individual companies, like Shell or Unilever, with solid yields and a strong track record of rewarding shareholders for decades.
Jonathan Smith has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Unilever. 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.