These FTSE 100 dividend stocks offer enormous dividend yields right now. Here’s why I’d buy them to hold for the next decade.
Grand Rio
Commodities producers like Rio Tinto (LSE: RIO) face significant near-term pressure as China rapidly slows. Economic conditions in the Asian nation — the world’s largest raw materials consumer — were already cooling before the start of 2022. A resurgent Covid-19 crisis there has put extra stress on the economy.
In response, ratings agency Fitch this week sliced its growth forecasts for China. It now expects the economy to grow 4.3% in 2022, down from a previous figure of 4.8%.
I fear that more downgrades could be coming too, as the coronavirus crisis drags on, the war in Ukraine continues and inflationary pressures rise.
This doesn’t mean I wouldn’t buy Rio Tinto shares, however.
All set for the supercycle
Firstly, I’m someone who buys UK shares based on their long-term outlook. Rio Tinto might face some profits turbulence in the near term. However, it’s my belief that the FTSE 100 miner could deliver titanic returns over the next decade as the ‘commodities supercycle’ slips into gear.
The iron ore Rio Tinto produces could soar as steelmaking production increases in response to rapid urbanisation in emerging markets. Meanwhile, the copper, cobalt and lithium Rio Tinto digs for will also be gobbled up by the electric vehicle industry. Growing demand for environmentally-friendly packaging will light a fire under aluminium demand as well.
12.1% dividend yields
Secondly, I’d buy Rio Tinto because of the exceptional all-round value the business offers at current prices of £56.45 per share.
The company trades on a forward price-to-earnings (P/E) ratio of just 6 times today. And its dividend yield clocks in at a mighty 12.1%.
It’s my opinion that low earnings multiple more than reflects the near-term risks Rio Tinto faces from China’s decelerating economy.
And while that expected dividend could come under threat if profits disappoint – the predicted payout is covered just 1.4 times by forecast earnings — I still think dividends will end up beating those of most other FTSE 100 shares. The Footsie average forward yield sits at 3.7%.
Another FTSE 100 dividend stock I’d buy
I also believe mining giant Glencore (LSE: GLEN) offers terrific all-round value today. At 483.5p per share, this Footsie firm trades on a P/E ratio of just 4.7 times. This is even lower than Rio Tinto.
Glencore’s dividend yield for 2022 comes in at an inferior at 9.3%. However, that figure slices the dividends of most other UK shares. Moreover, the dividend that analysts are expecting is covered 2.3 times by predicted earnings. This is above the widely accepted security benchmark of 2 times.
Glencore faces the same near-term demand risks as Rio Tinto. And like its peer, it could see profits suffer if it endures production problems at its sites. Still, its my opinion that the possible benefits of owning the base metals producer’s shares over the next decade outweigh the hazards.
