Forget Sirius Minerals! I’d earn an 11% dividend yield from this FTSE 100 stock instead 

It’s a calculated risk, with potential for good returns.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The beleagured polyhalite miner Sirius Minerals (LSE: SXX) updated investors about developments for its ‘alternative proposal’ yesterday. This proposal looked into the possibility of debt financing from a consortium of financial investors. According to the update the proposal is no longer viable. As a result, the board is once again asking shareholders to vote in favour of the acquisition deal put forth by the FTSE 100 multi-commodity miner Anglo American. Otherwise, Sirius Minerals could face liquidation.  

Getting back on track 

Only time will tell how the SXX story will go now. If the acquisition goes ahead, many investors will lose money. At some point or other, most of us have had to lick our wounds over poor investment calls, but we have learned that moving forward fast and trying to make better investing decisions is the surest way to get ahead again.  

For those who are put off growth investing for the moment, but still have a risk-taking streak, I’d like to suggest the FTSE 100 tobacco giant Imperial Brands (LSE: IMB). Its current dividend yield of over 11% is equal to the capital gains on some moderate growth stocks. Its yield is also second only to the miner EVRAZ among companies in the FTSE 100 set. 

Some risks ahead… 

The reason Imperial Brands is risky is that there’s no guarantee the company can maintain its dividends. It released a disappointing trading update last week, and now expects both lower revenues and adjusted earnings per share. Its share price fell 8% on the announcement and hasn’t recovered since. At any other time, investors might not have reacted as strongly. In the past, Imperial had a policy of increasing dividends by 10% every year. Last year, however, it said it would link its dividends to earnings going forward. Considering its disapponting latest earnings’ outlook, along with its new progressive dividend policy, IMB’s dividends now carry a risk.

…but calculated ones 

If I were to invest in IMB, though, it would be a calculated risk. For 2019, it paid a total dividend of 206.6p per share. At today’s share price, IMB’s dividend yield is 11.3%. If it were to cut its dividend into half, the yield would still be 5.7%. This is well over the average yield of all FTSE 100 companies put together. Further, if the dividend payout is withheld with a view to reinvestment in the company, that can also be good for its share price in the long term.  

My view in a nutshell is that IMB’s very far from being a total loss. Despite a continued fall in its share price over the past few years, IMB is no Sirius Minerals. It’s a large FTSE 100 stock that has presence across countries and has consistently seen substantial, rising revenues. But its dividend yield does carry some risk. If you are most risk averse, there are safe stocks among FTSE 100 companies to consider too. They might not promise as high incomes, however. 

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.

Manika Premsingh owns shares of Sirius Minerals. The Motley Fool UK has recommended Imperial Brands. 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.

More on Investing Articles

Person holding magnifying glass over important document, reading the small print
Investing Articles

Just released: our top 3 small-cap stocks to consider buying in October [PREMIUM PICKS]

Small-cap shares tend to be more volatile than larger companies, so we suggest investors should look to build up a…

Read more »

Investing Articles

How I’d use an empty Stocks and Shares ISA to aim for a £1,000 monthly passive income

Here's how using a Stocks and Shares ISA really could help those of us who plan to invest for an…

Read more »

Investing Articles

This FTSE stock is up 20% and set for its best day ever! Time to buy?

This Fool takes a look at the half-year results from Burberry (LON:BRBY) to see if the struggling FTSE stock might…

Read more »

Investing Articles

This latest FTSE 100 dip could be an unmissable opportunity to pick up cut-price stocks

The FTSE 100 has pulled back with the government’s policy choices creating some negative sentiment. But this gives us a…

Read more »

A young woman sitting on a couch looking at a book in a quiet library space.
Investing Articles

As the WH Smith share price falls 4% on annual results, is it still worth considering?

WH Smith took a hit after this morning’s results left shareholders unimpressed. With the share price down 4%, Mark Hartley…

Read more »

Investing Articles

The Aviva share price just jumped 4.5% but still yields 7.02%! Time to buy?

A positive set of results has put fresh life into the Aviva share price. Harvey Jones says it offers bags…

Read more »

Investing Articles

Can a €500m buyback kickstart the Vodafone share price?

The Vodafone share price has been a loser for investors in recent years, and the dividend has been cut. We…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Growth Shares

3 mistakes I now avoid when choosing which growth stocks to buy

Jon Smith runs through some of the lessons he's learnt the hard way over the years about what to look…

Read more »