As my colleague John Kingham recently wrote in the March edition of Master Investor Magazine, "high yield stocks do not always deliver the yield you were hoping for." This refers to the dreaded "yield trap", whereby companies which have seemingly large dividends relative to their share price then go on to disappoint investors by cutting or even suspending their distributions.
During my time in the financial markets I've learned that a yield of around 6% should be the starting point for suspicions over yield traps to be aroused – at that level investors could be set for a modest, or even substantial, dividend cut. Take Morrisons (MRW) for example. Back in 2014, when the Bradford based supermarket was experiencing difficult trading conditions, it yielded around 6-7% for much of the year. Subsequently, the dividend was slashed by 63%.
Any stock with a yield of 9% and over is pretty much guaranteed to be set for a markedly lower payment next time round. Or it could be a sign of something even worse. Back in June 2010 CD seller HMV Group announced a c.£24 million dividend to its shareholders, with the shares yielding 12% at the time. Two and a half years later the firm went bust!
by Robert Stephens| Equities| 5 mins. to read Being able to put emotions to one side is possibly the most difficult part of investing. Accumulating knowledge and capital is within the reach of most people. However, being entirely logical while also taking subjective stances on companies is tough.
by Zak Mir| Trading| 1 mins. to read It would appear that after an extended wait, Tern (LON:TERN) is finally looking capable of delivering an extended share price rally. I have to say that I became a fan of Tern well before the Internet of Things became the buzzword that it is now.
by Victor Hill | Economics | 12 mins. to read France goes to the polls this Sunday for the first round of a presidential election of existential importance – both for France and for the European Union as a whole.
by Evil Knievil | Evil Diaries | 1 mins. to read I apologise for filing copy late this morning but I have only just got in from the overnight train from Liverpool where I have been buying a week's supply of cocaine.
by Zak Mir | Trading | 1 mins. to read For some reason, over the past couple of weeks it has been rather difficult to latch on to ultra bullish charts. But at least with Lombard Risk Management (LON:LRM) the bulls have a worthy-looking contender.
Material contained within Master Investor Magazine and its website is for general information purposes only and is not intended to be relied upon by individual readers in making (or refraining from making) any specific investment decisions. Master Investor Ltd. does not accept any liability for any losses suffered by any user as a result or any such descision.
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