Are these FTSE 100 big yielders REALLY clever buys?

HSBC Lion, London

Investor appetite for the FTSE 100's energy giants has remained remarkably resilient despite signs that a much-needed OPEC freeze is on the verge of unravelling.

Royal Dutch Shell (LSE: RDSB) for one remains perched close to recent peaks above £22 per share, levels not furrowed since February of last year. But I believe the share looks chronically overbought at these levels.

Huge question marks

Rampant cost-cutting at the oil leviathan helped third-quarter profits beat expectations, Shell swinging to a $1.4bn profit on a constant cost of supplies basis (excluding exceptional items) from a $6.1bn loss a year earlier.

But there is only so much cash-hoarding Shell can undertake before these measures become seriously earnings-destructive. And while the acquisition of BG Group is propelling the firm's production higher, huge question marks are likely to hover over whether Shell's bottom line can keep stomping higher as the market's chronic oversupply persists.

Indeed, Shell itself cautioned this month that "lower oil prices continue to be a significant challenge across the business, and the outlook remains uncertain."

Under severe pressure

This difficult trading environment, allied with the capital-intensive nature of Shell's operations, continues to play havoc with the company's balance sheet, and net debt shot up to $77.8bn at the end of September. This is up from $75.1bn just three months prior.

And these factors are likely to put dividends in the near-term and beyond under severe pressure, in my opinion.

For 2016 Shell is expected to pay a dividend of 188 US cents per share, in line with payouts of recent years and yielding a terrific 7.4%. However, investors must bear in mind that this estimated reward dwarfs predicted earnings of 104 cents per share.

And earnings could continue to lag should, as many predict, the oil market imbalance persists, while pan-global legislation to reduce demand for fossil fuels could smack Shell's bottom line growth over the longer term.

I reckon the risks facing Shell far outweigh any potential rewards, and think investors should shun the company's vast near-term yields.

Banking bruiser

Whilst banking behemoth HSBC (LSE: HSBA) may also be forced to curtail the rampant dividend growth of bygone years, I reckon the firm is on much safer ground than Royal Dutch Shell.

For 2016 the bank is expected to pay a dividend of 52 US cents per share, up from 51 cents last year and yielding a titanic 6.3%.

On the one hand, investors should be concerned by dividend coverage of 1.2 times, some way below the widely-regarded safety watermark of 2 times.

But a welcome jump in HSBC's capital ratio -- albeit thanks to regulatory changes concerning the firm's investment in BoCom -- gives the bank more leeway to fork out chunky payouts to its shareholders. The firm's CET1 ratio leapt to 13.9% as of September, up from 12.1% a year earlier.

Don't get me wrong: a combination of low interest rates across the globe, combined with economic cooling in its critical Asian growth markets, casts a pall over HSBC's profits picture in 2017 and potentially beyond. And these troubles could put dividends under pressure in the medium term.

Having said that, I reckon HSBC could still provide lucrative returns in the years ahead as rising income levels in its key territories blasts demand for banking services to the stars. I believe could still prove a canny selection for patient investors, even if dividends come under strain in the more immediate future.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended HSBC Holdings and Royal Dutch Shell B. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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