Here are 5 cheap UK stocks with dividend yields over 10%
I think one of the best rewards for investing in the stock markets is the constant stream of passive income it can earn me. And after last year’s dividend drought, now seems the time to choose my future investments. There is a range of cheap UK stocks that also offer dividend yields of over 10%. In fact, I have already invested in many of them. But I like to keep it a bit safe. So I limited my search to only FTSE 100 and FTSE 250 actions. Indeed, these generally cover quality companies.
A cheap stock with the best dividend yield around
The FTSE 250 iron ore miner Ferrexpo offers the highest return among these, at 12.6%. I bought the stock recently, due to its high dividend yield and my assessment of its future. Like many other industrial metal miners, it has seen its stock price drop sharply in recent months, making it, in my opinion, a very cheap stock.
Iron prices have declined and forecasters are factoring in even lower prices in 2022 as Chinese demand is expected to slow. But a downward revision does not mean a price crash. In fact, the price of iron ore is still high compared to last year. And if the economic recovery remains robust, demand may also remain strong. So I remain optimistic about this.
Highest dividend yield of the FTSE 100
There is a similar story for the stock with the next biggest dividend yield. FTSE 100 metal miner and steel producer Evraz offers a yield of 12.2% and has seen a decline in the share price in recent months. Along with a correction in metal prices, the company is also facing higher taxes in its home country, Russia. I think these are among the reasons analysts expect its profits to drop next year. A drop in profits can also affect its dividends.
Even then, his term dividend yield should be 8.5%, which looks pretty good to me. These projections may be subject to change depending on changing circumstances, but are always a good place to start. Keeping this in mind, I bought the stock for my income investments.
Promising dividends but delisting due
Another FTSE 100 miner, BHP offers the second highest dividend yield of 11.3%. The Anglo-Australian commodity producer is in great shape. Both its sales and net income increased by 42% for the year ended June 30 compared to the previous year. But like all other miners, its stock price has fallen over the past two months, making it quite cheap, although in the past year it has risen by over 20% again.
From a performance perspective, there isn’t much to dislike, but I refrained from buying the stock as it expects to be delisted from the London Stock Exchange soon. And This article focuses on UK stocks, which technically won’t be soon.
A UK financial services stock with high dividends
The FTSE 250 trading platform CMC Markets also offers a dividend yield of 11.3%. With a low price-to-earnings (P / E) ratio of 4.4 times, this is one of the cheapest stocks I know of that otherwise performs well. Its share price fell sharply in early September after lowering its profit forecast for the fiscal year ended March 31, 2022.
Even then, I think the fall in its share price was out of proportion to the expected cooling in earnings. As a result, the attractiveness of the share only increased for me and I also bought some shares of CMC.
Financially healthy, but challenges at the corporate level persist
Another FTSE 100 miner, Rio Tinto, is the fifth stock to offer dividend yields of over 10%. At 10.7%, there is little doubt that this yield has been pushed up by the recent drop in the share price of the Anglo-Australian company. Like the other miners discussed above, this is at least in part due to greater caution in the demand for commodities.
But he also faced his own issues. Recently, he was scanned by authorities for allegedly withholding information about cost overruns for one of his projects. Previously, he had found himself in hot water for the destruction of historic Aboriginal caves in Australia, which resulted in changes in his leadership. Much of the rise in its stock price over the past year has been lost in recent months. It now has a P / E of only 5.5 times, making it a very cheap stock.
Although its results are expected to correct itself next year as well, it will still remain profitable. I also like its long-term potential vis-à-vis lithium, essential for batteries in electric vehicles. And I think it will continue to pay good dividends as well as it has over the past decade. I have Rio Tinto in my wallet.
Of these five stocks, four are miners. These clearly benefited from the upward trend in commodities observed since last year. And they’ve generously paid out dividends, which translates into double-digit dividend yields. But I also like these stocks because they have already paid dividends, for about five years at least. And, they have always been in good financial health. This is also true for CMC Markets, the only outlier in this group of stocks. So even though there is some moderation in the results of these companies next year, I can still be pretty sure that I will continue to earn passive income from them.
In addition, the expected decline must be seen against the background of an exceptionally good past year. And that goes for both miners and CMC, which has benefited from increased business activity by investors over the past year of fluctuating stock markets. As long as these companies stay in good financial health, I expect that they can provide me with a good stream of passive income over time if I stick to these investments.
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Manika Premsingh owns shares of CMC Markets, Evraz, Ferrexpo and Rio Tinto. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on 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. At The Motley Fool, we believe that considering a wide range of ideas makes us better investors.