Having sold off, mining shares' risky yields are enticing

Exposure to Chinese demand has long been listed as a bull point for mining companies, but In the wake of the Evergrande real estate crisis,  worries about a potential collapse in demand for raw materials from China has caused the shares of many mining companies to sell off. 

Dividend yields spike when share prices fall, so are seen as a value indicator but that also means a very high dividend yield can be the sign of a value trap. Investors should bear this in mind when thinking the miners now look good value. 

What you must think about when assessing a very high dividend yield, is whether it is sustainable. From the point of view of major mining companies, there is the possibility that dividends will be cut as the profit outlook sours but the question is by how much. 

So long as investors are confident miners can continue as a going concern - and in the case of the majors that’s in little doubt - then you could reasonably come to the conclusion that, even if a dividend was slashed, the reduced yield on current prices would still be attractive in a low interest rate world.  

For more diversified income plays, this month’s FTSE All Small Companies screen results show plenty of ideas to buy investment companies. Resources and emerging market focussed trusts are ranking highly, although the high yields on offer are in part inducement to take on uncertainty and hope that it breaks to the upside.