Forget the Cash ISA! I’d buy this FTSE 100 stock yielding 9%

A high-single-digit dividend yield makes this FTSE 100 stock one of the best income plays on the market, I feel.

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The best Cash ISA on the market at the moment offers an interest rate of just 1.36%. This tiny payout does not even match inflation, which means that your money will lose purchasing power if you decide to take up this offer.

Luckily, you can find numerous FTSE 100 companies that offer dividend yields significantly above this figure. The index provides an average dividend yield of 4.3%, but some of its constituents support yields of up to 10%.

Here is one company that is currently experiencing challenging trading conditions, but offers investors a dividend yield of 9%.

Tough times

Recent trading updates from steel producer Evraz (LSE: EVR) show a mixed picture.

While the company reported increased steel output on a year-on-year basis in the third quarter of 2019, total consolidated steel output declined by 3.4% on a quarter-by-quarter basis. External sales of iron ore products and coking coal also fell on that basis.

Further, the company is facing higher input costs. The average cost of producing steel increased by around 1.3% between the second and third quarters of 2019, while the average price of producing iron ore products increased by nearly 10% year-on-year.

Unfortunately, Evraz has not been able to increase prices to offset these higher costs. The average selling price for steel products declined from $507 per tonne in the second quarter of 2019, to $480 per tonne in the third quarter. The average selling price was down around 11% year-on-year.

Falling earnings

Looking at these numbers, it is no surprise that City analysts are expecting the steel producer to report a 54% decline in earnings for its 2019 financial year. However, despite this decline, the company’s dividend yield appears safe.

Forecasts hint that Evraz will distribute $0.64 per share in dividends this year, that’s around 49p. This implies a dividend yield of 12.5% for 2019 with dividend cover of 1.2. Next year, analysts are forecasting a per share distribution of 35p, giving a dividend yield of 9.1% on the current share price with a dividend cover of 1.5.

Evraz’s bleak earnings outlook has sent investors running for the hills, but with the stock currently trading on a price-to-earnings (P/E) ratio of just 6.6, now could be the right time to buy a slice of it.

The current valuation suggests that it offers a wide margin of safety, and the market-beating dividend yield of 9.1% is well covered by earnings, signifying that it is here to stay.

What’s more, if steel prices improve over the next 12 to 24 months, it is highly plausible that management will increase the distribution. For example, in its 2018 financial year, Evraz paid out a total dividend of 90p per share, which indicates a dividend yield of 23% on a current share price.

While Evraz might not look attractive at first, considering its falling earnings, the company’s low valuation and history of returning cash to investors imply that this stock could produce attractive returns for investors in the long run.

RISK WARNING: should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice. The Motley Fool believes in building wealth through long-term investing and so we do not promote or encourage high-risk activities including day trading, CFDs, spread betting, cryptocurrencies, and forex. Where we promote an affiliate partner’s brokerage products, these are focused on the trading of readily releasable securities.

Rupert Hargreaves owns no share 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.

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