Guess which ASX 200 stock has the highest dividend yield?

Dividend investors are always looking for income, especially when markets feel uncertain and share prices move around.

While many people focus on banks, telcos, or infrastructure stocks for dividends, one ASX 200 company currently stands above the rest for yield.

The payout on offer is far higher than most large Australian shares. In fact, it sits comfortably above 10% based on recent dividends paid.

So, which ASX 200 stock is it?

A dividend yield that stands above the rest

At current prices, Yancoal Australia Ltd (ASX: YAL) is offering the highest dividend yield in the ASX 200 based on dividends paid over the past year.

Shares are trading just shy of the $5 mark. Thanks to large cash returns to shareholders, Yancoal’s trailing dividend yield sits well into double digits. That puts it ahead of more traditional income stocks like the major banks and energy producers.

In comparison, the Commonwealth Bank of Australia (ASX: CBA) offers a dividend yield of around 3%, while Whitehaven Coal Ltd (ASX: WHC) sits closer to 2%.

Why the payouts have been so large?

Yancoal is one of Australia’s largest coal producers, exporting both thermal and metallurgical coal to overseas markets.

Coal prices surged in recent years, driven by tight supply and strong global demand. That allowed Yancoal to report very strong earnings and cash flow.

With costs under control and debt low, the company was able to pay out large dividends. In some years, those payments were far bigger than what investors normally expect from ASX 200 companies.

Dividends are strong, but not stable

While the yield looks attractive, this is not a reliable or predictable income stock.

Yancoal does not pay steady dividends every year. Its payouts rise and fall with coal prices, production levels, and market conditions.

That means today’s yield is based on past profits, not a promise of future payments.

Coal prices have come down from their highs, but they remain above long-term averages. According to Trading Economics, both thermal and metallurgical coal prices are still high enough to support profitable operations, even if margins are not as strong as before.

This suggests Yancoal can still generate cash, just not at the same level as during peak conditions.

What brokers are saying?

Broker views on Yancoal are mixed, but most price targets remain above the current share price.

Recent broker forecasts generally point to 12-month price targets between $5.50 and $6.00, with some more bullish estimates higher. That suggests potential upside of around 10% to 20% from current levels.

Several brokers continue to rate the stock as a buy, highlighting Yancoal’s strong balance sheet, low debt, and low-cost operations. These strengths give the company room to keep paying dividends, even as coal prices ease.

Not all analysts agree, however. Morgan Stanley remains more cautious, warning that earnings and dividends could fall as coal prices normalise. It has a $4.45 price target, which implies downside of around 10% from the current share price.

Foolish bottom line

Yancoal currently sits at the top of the ASX 200 dividend yield table.

That headline yield will appeal to income investors, but it comes with volatility. Dividends are closely tied to coal prices and are unlikely to stay this high.

For now, I am happy to watch from the sidelines. If coal prices weaken and Yancoal shares fall below $4, the risk and reward could start to look more attractive and worth reassessing.

Until then, Yancoal remains an interesting income stock, but not one I am rushing to buy today.

The post Guess which ASX 200 stock has the highest dividend yield? appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras 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.