Disastrous profit warnings are rare in FTSE 100 companies. Yet the recent price collapse at consumer finance group Provident Financial showed that they’re not immune. Announcing a barrage of bad news, Provident cancelled its interim dividend and said its full year payout was unlikely. For a £2.6 billion stock with a yield of 7.7 percent, this was bad news for income investors and a reminder of how much care is needed with high yield strategies.
Yield is understandably one of the most important considerations for income investors. It’s the go-to measure of how much bang-for-your-buck a stock will give in terms of dividend payouts against the price paid for its shares. The higher the yield, the bigger the attraction – but there’s a catch…
Very high yield is one of the biggest warnings of a vulnerable dividend. Exceptionally high yields are often found in shares that have been marked down by the market. A tumbling share price will naturally drive up the yield on a share. But if that falling price reflects concern about the company’s future earnings, then it could be that the dividend is at risk. For the unwary, the high yield lures them into a dividend…
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