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3 Dividend Stocks That Offer Massive Cash Yields!

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After 35 years of buying stocks, my investment strategy is much better. I’m an old-fashioned value investor, so I buy companies whose stock prices I believe are trading below fair value. In addition, I am willing to buy dividend stocks – stocks that make regular cash payments to shareholders – for their passive income.

A problem with dividend stocks

Ideally, I like to buy “cheap” stocks in solid companies trading at low P/E ratios and correspondingly high earnings yields. In addition, I hunt dividend stocks that provide market-rate cash returns for patient shareholders. Unfortunately, the problem with being a value/income investor is that not all stocks pay dividends.

Indeed, most London-listed stocks do not pay regular cash dividends. Also, future dividends are not guaranteed, so they can be reduced or canceled at any time. For example, many listed companies in the UK cut or delayed their dividends during the 2020 COVID-19 crisis. However, many reinstated these payments as the world returned to normal.

FTSE 100 Dividend Shares

The good news for me is that almost all companies in the UK are blue chip FTSE 100 Indices pay dividends. Currently, Footsie offers a dividend yield of approximately 3.8% per annum. On the other hand, many Footsie members offer much larger cash returns, such as these three “dividend dynamos”:

company

khaki

Rio Tinto

M&G

Company

To Build a house

to dig

Property manager

share price

1,315d

5,364 pp

192.8p

52 weeks high

2,930 pp

6,343d

230 pp

52 weeks low

1,113.5 pp

4,424.5 pp

159.3 p

12 month change

-53.8%

14.9%

-3.1%

market value

£4.2 billion

£88.58 billion

£4.5 billion

price-earnings ratio

5.7

6.0

,

generate revenue

17.5%

16.7%

,

dividend yield

17.9%

9.9%

9.5%

dividend cover

1.0

1.7

,

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three dividend alternator

My table shows that the shares in Housebuilder khaki More than half have crashed in 12 months. It has also increased its dividend yield to about 18% per annum – an unsustainable level, right? In addition, this dividend is not covered by trailing earnings, a sign to me that this payout will definitely decline in 2023. However, my wife owns the Persimmon shares and intends to hold onto them for their long-term recovery potential.

We also have shares in the Anglo-Australian mega miner Rio Tinto, which currently offers a near double-digit dividend yield. But that cash payment is backed by 1.7 times past due earnings – a much higher margin of safety than Persimmon. That said, Rio Tinto’s earnings in 2023 could be impacted by a fall in metal prices or a slump in Chinese demand. In addition, it last cut its dividend in 2016, so it has an earlier form in this area.

Finally, share in the asset manager M&G Also offer a competitive dividend yield of 9.5% per annum. However, this is not covered at all by current earnings (although M&G’s earnings are expected to return in 2023). On the other hand, the group’s future is closely linked to the performance of global asset prices, which could weaken again next year. So M&G’s dividend is by no means forward-looking.

i like rio the most

In short, I expect an economic downturn in the UK next year, which will affect the company’s earnings and could jeopardize some of the dividend. But of the three dividend stocks above, I prefer Rio Tinto because of its massive cash flows, earnings, share buybacks and sustained cash returns. And that’s why we’re holding on to our Rio Tinto shares for life!

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3 stocks that deliver great cash returns after dividends! First appeared in The Motley Fool UK.

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Cliff D’Arcy has financial interests in Persimmon and Rio Tinto stocks. The Motley Fool UK has no position in any of the listed stocks. Opinions about the companies mentioned in this article are those of the author 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 different insights makes us better investors.

Motley UK 2022

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