The Yield Trap
I read an article about income stocks the other day, pointing out that there were five stocks in the ASX 200 that had a yield of more than 10%. The stocks mentioned were Myer, Seven West Media, Genworth, Metcash and Monadelphous.
I wrote at the time that the golden rule of income investing is that “any stock that yields more than 10% probably doesn’t”. More often than not a high yield is a reflection of a fallen share price and an out of date dividend forecast rather than a share price bargain.
Myer had results shortly after and as they reported a 23 per cent fall in profit, cut their earnings guidance and cut their dividend the share price fell 10.19%, more than the annual dividend in one day. And that Ladies and Gentlemen is the definition of the yield...Continue Reading