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8.9% dividend yield! Should I buy this cheap FTSE 100 dividend stock?

macro shot of computer monitor with FTSE 100 stock market data in trading application

UK share markets finished 2021 with a flourish as concerns over Omicron and the economic recovery receded. The FTSE 100 closed at its highest since the pandemic began in early 2020 and it’s continued to charge in New Year trading as well. At 7,480 points the Footsie was recently 1.3% higher in Tuesday business.

Despite these rises, however, there are still plenty of opportunities for value lovers like me to pick up a bargain or two. These two big-caps, for example, offer yields well above the Footsie forward average of 3.4%. One offers yields just below 9% and the other a yield that’s lower but still north of 5%. Should I buy them for my shares portfolio today?

Going up in smoke?

At 8.9%, Imperial Brands (LSE: IMB) offers one of the biggest dividend yields on the FTSE 100. The party doesn’t end here either as, at £16.84, the cigarette maker trades on a forward P/E ratio of just 6.5 times too.

This looks like stunning all-round value and fans of Imperial Brands will argue that the company merits a punt at these prices. Okay, its traditional tobacco business might be in decline. But the company has spent a fortune on next-generation categories like e-cigarettes and oral nicotine products in recent years.

It’s predicted that sales of these products could soar as people seek healthier ways to get their nicotine fix. Analysts at Statista think the e-cigarette market will expand at an annualised rate of 5.7% between 2022 and 2025. That said, it’s my opinion that such bright forecasts could fall flat if legislators slap bans on the sale, use and marketing of these revolutionary products in the years ahead. New laws came into effect on 1 January in Oregon and Illinois, for example. And more could be coming down the pipe across the globe.

Meanwhile the steady fall of Imperial Brands’ core cigarette business remains a big problem, exacerbated by an ongoing tightening of regulations here too. The tobacco firm offers plenty of value it also carries far too much risk for my liking.

A FTSE 100 stock I already own

Barratt Developments (LSE: BDEV) is a FTSE 100 share I already own. And at current prices of 760p I’m considering bulking up my holdings. The housebuilder boasts a P/E ratio of 9.9 times and a dividend yield of 5.2% for 2022. I’d certainly rather buy it over Imperial Brands.

A lot of investors are becoming lukewarm on the housebuilders as they expect the homes market to cool sharply this year following 2020 and 2021’s bumper period. Mortgage approvals dropped to around 67,000 in November, according to the Bank of England. This was the lowest figure since June 2020.

These are risks but I for one am not panicking. Reduced home sales reflect a return to pre-pandemic norms following the turbocharging of the market that Stamp Duty withdrawal helped to create. It’s my opinion that the market will still remain highly supportive for Barratt and its peers, with interest rates ultra low and government Help to Buy support remaining in place.

Barratt has a long track record of paying big dividends, a story I expect to continue for a long time yet.

The post 8.9% dividend yield! Should I buy this cheap FTSE 100 dividend stock? appeared first on The Motley Fool UK.

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Royston Wild owns Barratt Developments. The Motley Fool UK has recommended Imperial Brands. 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.