The FTSE 100 has historically generated a yield of around 3%-4%, but several stocks in the index offer significantly more. For many investors, income is a preferred strategy. And even though my portfolio is more geared towards growth, dividends still play a vital part in my total returns. With that in mind, let’s look at two FTSE 100 stocks that have yields higher than 9%. Should I buy them?
Turnings homes into profit
Despite the disruptions of the pandemic on supply chains, homebuilders like Persimmon (LSE:PSN) have enjoyed some significant tailwinds. The temporary lifting of stamp duty, continued government support schemes, and more recently, inflation has sent property prices through the roof.
That’s obviously not great for individuals looking to buy a home. But Persimmon has managed to capitalise on the situation so far. Looking at its latest trading update, revenue in 2021 grew by 8% to £3.61bn. This is primarily thanks to the average house selling price climbing to £237,050 from £230,534, as well as an increased number of new-build completions. As such, management raised the dividend payout, and the stock now has a yield of 9.2%!
With government support schemes for first-time buyers coming to an end in March 2023, the favourable environment for homebuilders may soon be coming to an end too. This could compromise the FTSE 100 stock’s dividend yield if it leads to falling property prices. However, as demand for new housing in the UK remains elevated, I think it’s a risk worth taking for my portfolio.
A FTSE 100 stock adapting to the electric vehicle era
The automotive industry is in the process of phasing out petrol and diesel cars in favour of electric. And at the heart of these vehicles is a lithium-ion battery. With over a billion cars worldwide to be replaced by electric alternatives, the demand for lithium as a raw material is surging.
That’s great news for the mining giant Rio Tinto (LSE:RIO), which just acquired another lithium project in Argentina for $825m. With a diversified metals portfolio consisting of other materials related to renewable energy technology being extracted, this FTSE 100 stock looks like it’s got some considerable growth ahead. That’s especially encouraging given it’s currently paying out a 9.1% dividend yield.
But the shift towards a greener future is also causing problems for the business. Mining is not exactly known for being environmentally friendly. And protests in Serbia have erupted, disrupting Rio Tinto’s lithium mining operations in the region. If the Serbian government rescinds its drilling licenses, it could cause significant short-term disruptions to the group’s future income.
But over the long term, I think Rio Tinto should be able to find new projects elsewhere should the worst come to pass. That’s why I believe it could be a fantastic income opportunity for my portfolio, even with this risk factor.
But these two FTSE 100 stocks aren’t the only income opportunities I’ve spotted this week…
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Zaven Boyrazian 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.
