3 shares with huge yields rated as buys

It’s very rare to find shares that have high yields that could also be considered buys. Quite often the yield is a ‘yield trap’ where a dividend cut could be just around the corner.

Share website MarketIndex compiles broker ratings on various shares and combines it to get a consensus of whether a share is a buy, hold or sell.

Here are three of the highest-yielding businesses that are rated as buys:

G8 Education Limited (ASX: GEM)

This childcare provider currently has a projected grossed-up dividend yield of 10.9%. Its share price has fallen by nearly a third over the last year but there is now a lot of negativity priced into its price.

However, G8 could benefit from continued industry consolidation/acquisitions and the government is increasing funding. Slowing credit availability could stifle supply growth of childcare centres and that could lead to occupancy recovering across the industry.

It’s trading at around 11x FY19’s estimated earnings.

Fortescue Metals Group Limited (ASX: FMG)

Fortescue is one of Australia’s largest iron ore miners and has a trailing grossed-up dividend yield of 11.8%.

It has benefited nicely from the rise in iron prices with the share price up by 130% since the start of 2016.

With strong cash flow and a low valuation of 9x FY19’s estimated earnings it’s easy to see it performing decently from here if the iron price holds up or increases.

National Australia Bank Ltd (ASX: NAB)

NAB is one of Australia’s largest banks and currently has a grossed-up dividend yield of around 10%.

The bank is working with some of Australia’s fastest-growing businesses like Xero Limited (ASX: XRO), Afterpay Touch Group Ltd (ASX: APT) and REA Group Limited (ASX: REA). However, it is also heavily exposed to the mortgage market too.

It’s currently trading at 12x FY19’s estimated earnings.

Foolish takeaway

All three shares are trading at low valuations with high yields.

However, I wouldn’t personally classify any of them as buys because each of them comes with large risks. NAB has low-growth potential (at best) in the medium-term, the iron ore price could fall back any day and G8 doesn’t offer anything particularly ‘exceptional’ about its business model except being a decent roll-up.

If you’re after dividends and share price growth I believe this top ASX share is a much better bet for your portfolio.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO, National Australia Bank Limited, and Xero. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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