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Get rich, retire early: should you be tempted by this cheap FTSE 100 dividend stock?

The FTSE 100 continues to edge slowly higher following the crash of early spring. Yet many British blue-chips remain well below their pre-plunge levels and some dividend yields are truly eye-popping.

The yield at Russia commodity giant Evraz (LSE: EVR) is even more gobsmacking that that of the broader Footsie. In fact, it’s 8.8% forward figure makes it one of the best-yielding shares on the big-cap index. An earnings multiple of around 9.5 times underlines its cheap paper valuation too.

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It isn’t a share I’d be happy to spend my hard-earned cash on though. The integrated steel producer — which digs the iron ore and coal out of the ground in order to make its semi-finished and finished products — faces a colossal sales slump as the world reels from the coronavirus outbreak.

Will demand sink?

In mid-April, Evraz said that “we expect domestic steel demand to fall due to the significant economic downturn that the restrictions imposed due to Covid-19 are causing worldwide.” Sales of its construction products and railway goods are tipped to struggle in Russia and, to a lesser extent, in the rest of the world, it predicts.

The rising infection rate in Russia should come as a particular worry to Evraz. The country now has one of the fastest-rising infection rates on the planet. The death rate has been hitting repeated daily peaks in recent days too. It takes the shine off the decelerating rate of infection in many of the Footsie firm’s other major markets. Evraz is the largest supplier of beams, rails and construction steel products in the Russian marketplace.

Big stockpiles

The prospect of a sharp demand decline couldn’t come at a worse time either, given the heightened level of global steel inventories. Citing latest data from the China Iron and Steel Association and Mysteel, the World Steel Association notes that total steel stocks held by steel producers and distributors stood at a record 55m tonnes as of the end of March.

Clearly, the upcoming global recession threatens to keep steel consumption under pressure. Yet production at Evraz, for one, has continued to move higher (this was up 3.2% quarter-on-quarter between January and March). A market in a state of bloated imbalance is clearly something investors need to worry about for the next few years.

Screen of price moves in the FTSE 100

FTSE 100 dividend danger

Now City analysts are expecting annual earnings at Evraz to rocket 88% in 2020. They’re predicting the bottom line will swell 13% on a year-on-year basis in 2021 too. Clearly these heady forecasts are in danger of being revised severely lower before long. And that casts doubt over that near-9% dividend yield.

The FTSE 100 company had a whopping net debt pile of $3.4bn as of December, most recent data shows. The condition of Evraz’s balance sheet has long courted speculation that it could rebase the dividend. With its market outlook deteriorating it looks like 2020 could be the year that this happens.

This is an income share I’d avoid right now.

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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.