20%+ dividend yield as this FTSE 100 share plunges! Should I buy right now?

I like high-yielding shares that can help me build my passive income streams. Many UK dividend shares offer low to mid-single digit percentage yields, although there are some double-digit yielders around. But after crashing 30% in trading today, one FTSE 100 share offers a 20%+ dividend yield right now!

Should I act and buy it for my portfolio?

Mining giant

The share in question is miner Evraz (LSE: EVR). The steel producer is best known for its mines in Russia, but it does have operations in other countries including Ukraine and the US.

So, why has the market pummelled Evraz shares in today’s trading session? In short, mounting political concerns about Ukraine and Russia are hurting investor sentiment on the company. There are concerns that political developments could impede Evraz’ ability not only to produce steel but also to sell it on the world markets. Sellers have been offloading their Evraz positions, pushing its already unusually high yield up to an incredible 26%.

In other words, if I buy the shares now and the dividend remains at the current level then in just four years I will already have covered my purchase price. Anything else would be pure profit.

Is a 20%+ dividend yield sustainable?

The $64,000 question is contained in that little word “if”. Will Evraz maintain its dividend, making today’s price crash the buying opportunity of a lifetime for my portfolio? Or does the unbelievably high yield signal market expectations of tumbling profits leading to a dividend cut at the miner?

First, it is worth noting that Evraz does have a strong recent dividend history. Last year, it paid out 95c of dividends. Although that was almost double what it paid out the prior year, it was actually less than the total 2019 level. So, the current Evraz dividend amount is not an exceptional one-off, in my view. Like many mining companies, the dividend has moved up and down reflecting shifts in commodity prices and trading conditions. But it has paid dividends for the past five years in the row.

Story continues

There is a lot of press speculation about political risks in Ukraine and what that could mean for the business of Evraz, given its strong Russian links. But that remains speculation. As a miner with experience in frontier markets, Evraz has a developed understanding of political risk, I think. That does not mean it is immune from any fallout of Russian foreign policy, such as economic sanctions. But it is an established miner and with high demand for steel, I expect it can continue to find end markets for its product.

I am tempted to buy – but am not

I am sorely tempted by the 20%+ dividend yield on offer, which might not last.

But I am an investor, not a trader. Even before today’s share price crash, Evraz had an attractive yield. But I had decided not to buy it for my portfolio, as it looked too risky for me. One concern I had is the risk that commodities markets will cool in the next few years, hurting revenues and profits at Evraz.

That risk remains, in my opinion. A higher yield would offer me more compensation for accepting it, but I remain uncomfortable with it. So I will not be adding Evraz to my portfolio.

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Christopher Ruane has no position in any of the shares mentioned. The Fintech Zoom 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 Fintech Zoom we believe that considering a diverse range of insights makes us better investors.

Fintech Zoom UK 2022