Dividend dogs vs diamonds: Part 1 – beware the yield
A high yielding dividend might be very tempting to investors seeking a little extra income, but buying a stock for a yield which is unsustainable is a worryingly easy way to lose money. Vodafone is proof of that. In part one of our mini-series on income investing, we pick out the companies which look like they might be the next victims of a dividend cut.
An 8% dividend yield is a major red flag for income investors. It is shareholders’ polite way of telling company management and analysts that they do not have faith in their forecasts for both profits and the pay-out.
More often than not, they are right. Russ Mould, investment director at AJ Bell, said: “It's not perfect but the market often does a pretty good job of factoring in news ahead of time”. That is certainly true of Vodafone (LON: VOD), who’s shares were yielding over 10% when management cut the annual pay-out by 40% in May, putting an end to more…
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