Is the 11% dividend yield from Yancoal shares too good to be true?

Can you ever rely on an 11% dividend yield?

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Looking at the Yancoal Australia Ltd (ASX: YAL) shares right now, one metric will probably jump out at you straight away. That would be this All Ordinaries Index (ASX: XAO) stock's monstrous dividend yield.

Yancoal shares closed on Thursday at $6.20 apiece. At that pricing, this All Ords coal stock appears to be trading on a trailing dividend yield of a whopping 11.21%.

Yancoal's last few dividend payments have also come with full franking credits attached. This means that 11.21% yield would gross up to an even more eye-watering 15.83% with the value of those franking credits included.

ASX All Ords shares are well-known for relatively high dividend yields compared to what is on offer on other stock exchanges around the world. But even so, an 11% yield (let alone a 15.8% one) is well above what your typical ASX share would offer investors. To illustrate, it's rare to see an ASX bank stock, usually amongst the highest-yielding ASX blue chips on the market, on a yield above 7%.

So 11% is a big deal.

However, as every dividend investor knows, a company's dividend yield is only a reflection of the past. It in no way guarantees that an investor who buys a share today will receive its current dividend yield on their investment going forward.

So today, let's talk about whether Yancoal shares' ridiculous 11.21% dividend yield is the real deal.

Is Yancoal shares' 11% dividend yield too good to be true?

Well, first things first, Yancoal's 11% yield is legitimate. It comes from the last two dividend payments the company has forked out.

The first was last September's interim dividend of 37 cents per share, and the second was the 32.5 cents per share payment we saw doled out back in April. As we touched on above, both of these payments came with full franking credits attached.

If we plug in these 69.5 cents per share in dividend payments into the current Yancoal share price, we get a trailing yield of 11.21%.

But what about the future?

Unfortunately, Yancoal's dividends are even harder to forecast than most ASX All Ords shares due to its nature as a commodity stock. This company's profitability (and thus divided dividend ability) is almost entirely dependent on the price of coal over any given period.

If coal prices are high, Yancoal's coffers will be flush with cash, and the company will have to capacity to continue to fund large dividend payments. However, if coal prices sink, you'll almost certainly see a corresponding drop in the levels of dividend income that shareholders will enjoy.

Income feast and famine

To illustrate just how wildly this company's payments can fluctuate, Yancoal paid out $1.23 per share in dividends over 2022, a year that saw a huge runup in the price of coal. But just three years prior in 2019, investors received a total of just 38.9 cents per share.

As my Fool colleague Zach recently covered, Yancoal's most recent quarterly update indicated that the company was continuing to enjoy relatively high coal prices, which bodes well for the company's short-term dividend firepower.

But Yancoal is never going to be a company with a reliable and predictable dividend yield. So don't expect to buy this All Ords stock today and forever get an 11% yield on your cash.

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.

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