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Forget buy-to-let! I’d buy these FTSE 100 stocks that yield 6%

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Over the past few decades, buy-to-let property yields across the UK have slumped. The average yield across the country now stands at just 4.5%, which is around the same as the FTSE 100 index.

And many FTSE 100 stocks even offer dividend yields above this figure. Today I’m going to highlight two FTSE 100 dividend stocks that both offer yields of more than 6% that I think would be great alternatives to buy-to-let in your investment portfolio.

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World leader

Rio Tinto (LSE: RIO) is the world’s largest iron ore producer, and it is also one of the most efficient.

After years of cutting costs and reinvesting cash flow from operations back into the business to improve efficiency, Rio can now produce iron ore for as little as $15 per wet metric tonne excluding freight costs.

The price of the essential steel-making ingredient has traded above $120 a tonne this year, which gives you some indication of just how much cash Rio is throwing off right now.

For the six months to the end of June, the company generated $3.9bn of free cash flow, giving management financial backing to declare a record half-year dividend payout of $3.5bn.

Since 2016, Rio has focused on generating cash and returning as much of it as possible to investors. The $3.5bn special payout came on top of a $4bn special dividend that was announced at the beginning of February and followed a record level of distributions last year. In 2018, Rio returned $13.5bn to shareholders.

Now the miner’s balance sheet is debt-free, management has even more scope to return cash to investors, and I expect the company’s special dividend streak to continue.

City analysts believe Rio has the potential to return total of $4.50 per share to investors for fiscal 2019, giving a dividend yield of 8.2% on the current share price. A dividend yield of 6.4% is expected for 2020.

Cash cow

As well as Rio, I’m also optimistic about the outlook for oil giant BP (LSE: BP). Following a dismal third-quarter trading update, when the company reported a $750m loss compared to earnings of $3.3bn in the same period a year ago, shares in this oil major have slumped. The stock is now off by more than 20% excluding dividends since April.

However, after this decline, I think the stock looks exceptionally attractive. It is currently dealing at a forward P/E of just 12.5 and supports a forward dividend yield of 6.5%.

But what about those falling earnings? Well, profits were impacted by lower oil prices, but BP also took a $2.6bn charge following the agreed sale of a parcel of US assets for a lower value than it had on its books. Excluding this and other charges not related to production activities, underlying replacement cost profits — BP’s definition of net income and the measure tracked most closely by analysts — were nearly $2.3bn.

I think these numbers show that while BP might be going through a rough patch, the company’s underlying business is still throwing off cash. With that being the case, I think the stock remains an excellent dividend investment for long-term income seekers.

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Rupert Hargreaves owns no share 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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