Should you buy the 3 highest-yielding dividend shares in the ASX 200?

Buying high-yield ASX dividend shares is always a risky business. Get the call right, and you can potentially lock in a lucrative stream of passive dividend income for years into the future. Not to mention the potential of valuable franking credits.

But get the call wrong, and you could be caught in the dreaded dividend trap and see your investment lose value whilst not receiving nearly as much income as you had banked on.

Whenever an ASX 200 share trades on a high dividend yield it should automatically ring alarm bells. After all, the market doesn’t usually price ASX dividend shares with yields at 8% or higher for long, unless it is expecting that yield to be unsustainable.

So today, let’s check out three of the highest-yielding shares on the S&P/ASX 200 Index (ASX: XJO), and discuss whether they might be worth buying, or else avoided at all costs.

A caveat: we’ll just be using ordinary dividends in our calculations today, as including special dividends gives off a distorted projection of what kind of income one can expect to receive going forward.

The three highest-yielding dividend shares on the ASX today

Fortescue Ltd (ASX: FMG)

Fortescue is one of the more well-known dividend shares on the ASX, thanks to the veritable shower of cash it has rained onto its investors in recent years. Today, this ASX 200 iron ore miner is trading on a dividend yield of 8.58%, which typically comes with full franking credits attached too.

This dividend yield hails from Fortescue’s last two dividend payments, which were worth $1 and $1.08 per share respectively.

Fortescue’s ability to fund dividend payments rests almost entirely on the going price for iron ore in any given six-month period. As such, this is a difficult stock to anticipate when it comes to future dividends.

I wouldn’t bank on an 8%-plus yield forever if you buy Fortescue shares today. But I think Fortescue will continue to be one of the highest-yielding stocks on the ASX going forward, barring a major collapse in global iron ore markets.

Fletcher Building Ltd (ASX: FBU)

Next up we have ASX 200 share and construction materials company Fletcher Building. Fletcher stock is today trading on a huge trailing dividend yield of 11.31%.

However, we already know this is an unsustainable yield. This yield comes from the 37.6 cents per share in unfranked dividends that the company forked out over 2023. But in the company’s half-year earnings report from February this year, Fletcher revealed a net loss after tax of NZ$120 million. This resulted in Fletcher suspending its dividend entirely.

The company’s high yield that we see today is more of a consequence of the near-40% drop its shares have endured over 2024 so far. With no future income on the horizon, this looks like a classic dividend trap to me.

The ASX 200’s highest-yielding stock: Platinum Asset Management Ltd (ASX: PTM)

Finally, we get to the highest-yielding ASX 200 share on the market today – fund manager Platinum. Platinum shares are currently trading on a monstrous dividend yield of 13.04% right now. This comes from the total of 13 cents per share that the company has doled out over the past 12 months.

Again, this looks like it could be a dividend trap. Platinum’s dividends, alongside its funds management business, have been on the slide for years. Back in 2018, Platinum funded an annual total of 32 cents per share in fully franked dividends. But by the 2023 calendar year, this had more than halved to 14 cents.

Fund managers usually make their profits (and thus fund their dividends) from their underlying base of funds under management (FUM). Unfortunately for Platinum, its FUM has been on a downward trajectory for years now.

Just last month, the company revealed that its total FUM decreased 11% from $15.46 billion at the end of March to $13.75 billion by the end of April.

Unfortunately, we have to conclude from this data that Platinum shares are another dividend trap today.

The post Should you buy the 3 highest-yielding dividend shares in the ASX 200? appeared first on The Motley Fool Australia.

More reading

• Down 6% in a week. Are Fortescue shares carrying an iron anchor?
• 5 things to watch on the ASX 200 on Tuesday
• Here are the top 10 ASX 200 shares today
• The worst three performing ASX 200 shares in May unmasked
• Why APM, Fletcher Building, Navigator Global, and Strike Energy shares are storming higher

Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.