The two highest-yielding FTSE 100 dividend stocks currently offer forecast yields of 10%, or more. Should I consider buying these shares for my income portfolio, or are their payouts likely to be cut? I’ve been taking a closer look.
Is this 19% yield about to tumble?
The top yielder in the FTSE 100 today is coal, iron ore and steel producer Evraz (LSE: EVR), whose largest shareholder is Chelsea FC owner Roman Abramovich. Broker consensus forecasts suggest this Russian business will pay dividends of $1.27 per share in 2022, giving a forecast yield of just over 19%.
Is this really possible? I think it might be. Current broker forecasts suggest to me that Evraz could generate enough profit to support a dividend payout of this size in 2022.
Of course, profit forecasts can change quickly for miners if commodity prices slump. But I don’t think it’s impossible. In my view, Evraz really could deliver a dividend yield of 19% in 2022.
Should I buy today?
It’s worth remembering that commodity prices were quite extreme last year. One way to look at this is by considering Evraz’s dividends. I estimate the company has paid out $1,800m to shareholders over the last 12 months. That’s six times the company’s minimum dividend policy of $300m per year.
History suggests conditions like this don’t last forever. Indeed, coal and iron ore prices have already fallen by around 40% from the highs we saw last year. Even so, current prices still look quite high to me, by historical standards. If the global economy slows, I think commodities such as iron ore could have further to fall.
I expect Evraz’s dividends to dip in 2023, if not in 2022. But even if the payout was cut by 50%, the stock would still offer a tempting 9% yield.
Should I buy Evraz for my portfolio today? In my experience, mining shares are often more volatile than other FTSE 100 companies. Evraz’s Russian exposure adds extra risk, in my opinion.
For these reasons, I plan to wait until mining stocks are really bombed out before buying Evraz shares. I don’t think that’s true at the moment.
This FTSE 100 dividend stock yields 10%
Housebuilder Persimmon (LSE: PSN) has become a popular choice for income investors in recent years, thanks to its regular 235p per year dividend. At the current share price, that gives this FTSE 100 dividend stock a forward yield of 10% for 2022.
Based on Persimmon’s recent performance, this payout looks affordable to me. Profit margins have been high in recent years, giving the group’s strong cash generation. Management reported a chunky net cash position of £1.3bn at the end of June.
What worries me about Persimmon is that it’s paying out almost 100% of its earnings as dividends. This suggests to me that if profits dip for any reason, then the dividend might have to be cut.
I think this could happen. Persimmon’s profits peaked in 2018 and have fallen steadily since. Buyers are now battling rising inflation and the risk of higher interest rates.
However, management says housing demand remains strong and City analysts are forecasting higher profits this year. If they’re right, then I think Persimmon could offer an affordable and sustainable 10% dividend yield.
Personally, I’m wary about the outlook for housing after a decade of unbroken growth. I plan to wait until housebuilders become less popular before adding one to my portfolio.
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Roland Head 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.
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