While the rates of interest available on cash savings accounts have increased significantly of late, research carried out by Shares shows a quarter of the FTSE 100 and 30% of the FTSE 250 offer dividend yields of more than 5%.

You can get a 5% rate from cash on deposit but it typically involves putting your money away for at least one year. Unlike cash, stocks have the potential for capital gains (though also the risk of loss too).

But before you get carried away, a high dividend yield needs careful examination as it can be a sign the market thinks the dividend is at risk of being cut or cancelled.

The top yielders on the FTSE 100 are mainly drawn from the ranks of the financial sector. While this space is benefiting from higher interest rates, banks, specifically, are exposed to risks of increasing bad debts among their customers – both businesses and individuals. However, most banks remain optimistic about their prospects for the short and longer-term. For example, HSBC (HSBA) yields 7.6% and said in May that it should soon pay as much in dividends as it did pre-pandemic.

The mining sector is also heavily represented; Glencore (GLEN) and Rio Tinto’s (RIO) respective yields of 11% and 7.4% are generous but one needs to recognise their share prices have been weak this year on fears about the global economy and near-term commodities demand.

The FTSE 250 list of highest-yielding stocks is more of a mixed bunch.

Infrastructure firms are sensitive to shifts in interest rate expectations, which explains why many companies in this space have been weak on the stock market of late as rates are expected to go up again soon. However, they are traditionally seen as good sources of income.

Digital 9 Infrastructure (DGI9) offers an 11% prospective dividend but this is not currently covered by operating cash, which explains why investors are worried the current level of payout is unsustainable.

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