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Our views 26 June 2019

Deciphering dangerous dividends

By Richard Marwood, Senior Fund Manager and Niko de Walden, Fund Manager

5 min read

Income investing is often thought to be a simple matter of selecting stocks with high dividend yields. An impressive dividend yield can certainly indicate an outstanding income investment opportunity, yet more often than not it reveals a value trap in which the dividend will be imminently cut.

Dividends are generally perceived as expressions of confidence in a company’s future, and as such, CEOs tend to be highly reluctant to cut them. Companies frequently over-distribute for many years before making dramatic cuts; often following a change of CEO, company strategy or a rescue rights issue.

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