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Evraz (LSE:EVR) is a member of the FTSE 100 index. It’s a steel manufacturing and mining company, with operations in Eastern Europe. For commodity stocks, a high dividend yield isn’t unusual. Yet at the moment, Evraz shares offer investors the highest dividend yield in the index. Coming in at 20.31%, this is eyebrow raising. But the big question is, is the high yield worth the risk?

Falling share price helping to push up yield

The FTSE 100 average dividend yield is 3.2%. Clearly, there will always be a premium on the yield of these stocks versus the base rate (0.5%), or even Gilt yields. The main reason for this is that my capital isn’t protected by any means. The share price fluctuates, adding a profit/loss on my capital which I have to take alongside the dividend payments.

For Evraz shares, this volatility is definitely something to be aware of. Although over the past year the share price is only down 9.5%, over the past month it’s in the red almost 25%. This falling share price has helped to push the dividend yield higher.

Part of the reason for the fall was down to the mixed bag of results for 2021, released in the annual report last month. Total sales of steel products dropped 4.5% versus the same period in 2020. Iron ore production was also down. However, one highlight was the increase in production of raw coking coal, grew 12.7% year-on-year. 

Another point hurting shares (and the currency markets) is the ongoing conflict with Russia and the Ukraine. Although tensions have simmered down somewhat in recent days, the potential for invasion is still very much on the cards. Evraz has operations in Russia, so any economic impact that the West may inflict on Russia could negatively impact exports for the company.

A dividend payer to add?

As far as the dividend goes, the latest announcement was on 14th December last year. The was paid a month later, with a natural drop being seen as the stock went ex-dividend over Christmas. 

From our perspective, the dividend per share payout does look sustainable for the business. It has a policy as stated that “in line with the existing capital allocation policy, no dividends will be paid out if Net Debt/EBITDA is above 3.0x”. This is sensible.

In fact, rather than seeing the 20% yield as an overly high dividend per share, it’s more a case of the yield being pushed up from a falling share price. If you’re of the opinion that the issue with Ukraine will taper off, and that production levels and sales will pick back up this year, it does seem to be an attractive dividend play.

Overall, if you’re comfortable with a stock with high volatility and a correlation to commodity prices, then a small allocation to Evraz shares for the generous dividend yield could be rewarding. 

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