I have written before about the potential merits of investing in a portfolio of high yield shares, both for those in the wealth building phase and those seeking an income from which to live. But in my view the success of the strategy will lie more in the ability to identify sustainable and growing income streams which can be the most difficult thing to get right when fishing in this particular sea. As a minimum we would want to see our income growing at least with inflation, particularly if we are relying on it to meet our living expenses.
The problem is, too many high yield investors focus more on the size of the dividend yield rather than whether the dividend looks sustainable and therein lies the danger. There is nothing like a tantalisingly high yield to evoke the deadly sin of greed and brush fundamental analysis under the carpet.
As a value investor, I subscribe to the idea that the market can, for periods of time, mis-price shares and create opportunities to purchase them below their intrinsic value. But when it comes to dodgy dividend payouts, the market eventually manages to sniff them out and pushes the dividend yield…
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