Should you buy these FTSE 100 dividend stocks that yield over 5%?

Edward Sheldon looks at two FTSE 100 (INDEXFTSE: UKX) dividend stocks that offer high dividend yields.

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The FTSE 100 index is home to many companies that reward their shareholders with big dividends. Today, I’m looking at two stocks that currently yield over 5%. Could these boost your personal income stream?

ITV good viewing?

ITV (LSE: ITV) shares have had a rough year, falling from near 220p to 145p today. That’s a painful decline of over 30%. Naturally, the share price fall has pushed the dividend yield up and the stock now sports a trailing yield of an eye-catching 5.4%. Is that a steal or a yield trap?

Personally, I believe that ITV’s share price is oversold at present and that the high dividend yield on offer is an attractive opportunity. Recent FY2017 results were solid, with total external revenue rising 2% and revenues on the content side of the business – ITV Studios – rising 13%. The company advised that it now generates 56% of revenue from sources other than spot advertising, which is helpful as the advertising market is quite weak at present.

One thing worth noting about ITV is that, despite negative sentiment towards advertising-related stocks right now, several high profile UK portfolio managers continue to hold the shares within their portfolios. Neil Woodford owns the stock in his Income Focus fund, while Mark Slater owns it in his growth fund. When two of the most well-respected fund managers in the country own a stock, it’s worth taking a closer look, in my view.

ITV’s dividend is well covered and City analysts expect growth of around 8% this year. With the stock trading on a low forward P/E ratio of just 9.4, I believe its shares have considerable dividend appeal right now.

Rio Tinto worth a dig?

Another FTSE 100 dividend champion that offers a 5% yield at present is mining giant Rio Tinto (LSE: RIO).

Commodity prices have rebounded significantly since they collapsed dramatically a little over two years ago, in early 2016. That’s great news for a company like Rio Tinto, as it translates to higher revenues, cash flows and profits. And for investors, that translates to higher dividends.

For FY2017, Rio’s earnings per share jumped 70% and that enabled the company to lift its dividend by 70%, pay down debt and commence a share buyback programme. A dividend of $2.90 per share was declared, which at the current share price equates to a big yield of 5.2%.

While last year’s dividend was covered by earnings around 1.7 times, if you invest for income, it’s worth remembering that mining is a highly cyclical business. This can affect dividend payouts. For example, for FY2016, Rio cut its dividend as lower commodity prices impacted profitability.

Currently, City analysts expect another big dividend from the company this year, with a cash distribution of $3.13 anticipated. However, the payout is likely to depend on the strength of commodity prices for the remainder of 2018.

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.

Edward Sheldon owns shares in ITV. The Motley Fool UK has recommended ITV. 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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