When preparing for any investment decision, I like to consider the dividend yield I could be paid by holding a stock. While not every stock pays a dividend, there are a number currently on the market that can form a central component of a portfolio geared towards income. I think I’ve found two such stocks, so let’s take a closer look.
Steely determination can pay off
The first share of interest is Evraz (LSE: EVR), a steel and coal mining company. Although it is UK-based, it operates mines in Russia, the US, Kazakhstan, Czech Republic, and Canada. This stock truly has a consistently outstanding dividend yield. For the calendar years 2017 to 2019, Evraz registered double-digit yields. The exception was 2020, when the figure stood at 9.3%. This all means that the average yield for the past four calendar years is 11.93%. The dividend cover has been steady across this period, aside from a bumper year in 2018.
What’s more, the earnings-per-share (EPS) data is encouraging. This has grown from ¢49 for the 2017 calendar year to ¢58 for the same period in 2020. Similarly, profits before tax over this time have been healthy. These have increased from $1,155m in 2017 to $1,295m in 2020. I will be very interested to see how Evraz has performed in 2021 when its results are released in the near future.
I am cautious, however, regarding the sector in which this company operates. While the price of steel has reached new highs during the pandemic, output and usage may decline because supply chain problems persist as the world reopens.
Is this dividend stock also smoking hot?
In the realm of income stocks, another solid performer is Imperial Brands Group (LSE: IMB). This company is a big player in the tobacco industry and manufactures a number of products including cigarettes, vapes, and cigars. It sold the cigar business during the pandemic to streamline its broader operations.
Like Evraz, Imperial Brands has had exciting historical dividend yields. In 2017, the rate was 5.4% and by 2021 this stood at 8.9% with growth in the interim. This increased yield may be misleading, however, because the actual dividend cover per share has remained steady. What this reflects, therefore, is a long-term declining share price. While in the past year, from January 2021 until now, shares have gained about 6%, the five-year chart is rather troubling. This reveals a significant fall of 51%.
Furthermore, the EPS data is trending down, with a decrease of 7.4% over the past five years. In spite of this, pre-tax profit increased to £3.24bn for the year ended 30 September 2021, up from £2.17bn the previous year.
Both of these stocks have great dividend yields. That said, I feel the Imperial Brands yield is artificially high owing to its falling share price. While the two stocks have enjoyed recent increased profitability, I will only be buying Evraz because I believe investors truly reap the benefits of its dividend policies.
Andrew Woods does not own shares in any of the companies mentioned. 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.
