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Looking for dividend shares with a sustainably excessive yield is a tough endeavour. Typically, the attract of a extremely excessive dividend yield can blind me to the purple flags related to a specific firm. Taking a step again earlier than I decide to something has helped me up to now. Due to this fact, listed here are two concepts that look juicy however aren’t well worth the danger, for my part.
A giant fats zero
At first inspection, Shut Brothers (LSE:CBG) may look interesting. The dividend per share over the previous yr has been 45p, so after I mix this with the present share value I get a yield of 9.43%.
Nevertheless, this solely tells half the story. Again in February, the corporate launched a press release wherein it introduced that it wouldn’t be paying any dividends for the present monetary yr. This was as a result of ongoing evaluate from the Monetary Conduct Authority (FCA) relating to historic motor finance fee preparations.
Relying on the end result of the evaluate, Shut Brothers could possibly be fined and penalised in different methods. Due to this fact, it is smart to attempt to protect money stream for any potential want right here.
But for a dividend investor like me, I see little level in shopping for now. The dividend yield is deceptive, as I wouldn’t be getting any dividends within the close to future.
That mentioned, the 43% drop within the share value over the previous yr may lead some worth traders to purchase for the long run. It’s true that the financial institution has a powerful observe report, having been based over a century in the past.
Struggling in the mean time
A second agency I’m cautious about is Crest Nicholson (LSE:CRST). The share value for the UK residence builder is up 8% over the previous yr. Nevertheless, I don’t really feel this tells the total story.
The enterprise has issued a number of revenue warnings over the previous yr. The final one got here simply a few months in the past with the half-year outcomes. It was blamed on numerous issues, starting from a low degree of reservations, a tricky macro backdrop, together with one-off distinctive gadgets. The disappointing funds meant that the dividend paid was simply 1p per share, in distinction to the 5.5p from the identical time final yr.
This has diminished the dividend yield to five.86%. Nevertheless, some may suppose that that is nonetheless engaging, because it’s above the FTSE 250 common yield. That is true, however one thing else considerations me.
Bellway has simply pulled out of creating a agency provide for Crest Nicholson. The bigger rival believes it has a powerful sufficient steadiness sheet to develop organically. With out this deal, it’ll probably make it tougher for Crest Nicholson to get again to monetary well being shortly. The inventory fell 15% final week when the information was introduced.
Due to this fact, I see future dividends underneath stress of being lower once more. Till the agency begins to carry out higher, it doesn’t look engaging to me. After all, I could possibly be fallacious. Homebuilders ought to profit from decrease rates of interest right here within the UK. This could make mortgages extra reasonably priced and supply increased demand for property gross sales.
