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Looking for dividend shares with a sustainably excessive yield is a difficult endeavour. Generally, the attract of a very excessive dividend yield can blind me to the purple flags related to a selected firm. Taking a step again earlier than I decide to something has helped me up to now. Subsequently, listed here are two concepts that look juicy however aren’t well worth the threat, for my part.
An enormous fats zero
At first inspection, Shut Brothers (LSE:CBG) would possibly look interesting. The dividend per share over the previous 12 months has been 45p, so once 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 an announcement through which it introduced that it wouldn’t be paying any dividends for the present monetary 12 months. This was as a result of ongoing evaluation from the Monetary Conduct Authority (FCA) relating to historic motor finance fee preparations.
Relying on the end result of the evaluation, Shut Brothers could possibly be fined and penalised in different methods. Subsequently, it is sensible to try to protect money move 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 12 months would possibly lead some worth buyers to purchase for the long run. It’s true that the financial institution has a robust monitor 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 dwelling builder is up 8% over the previous 12 months. Nevertheless, I don’t really feel this tells the total story.
The enterprise has issued a number of revenue warnings over the previous 12 months. 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 stage of reservations, a troublesome macro backdrop, together with one-off distinctive objects. The disappointing funds meant that the dividend paid was simply 1p per share, in distinction to the 5.5p from the identical time final 12 months.
This has diminished the dividend yield to five.86%. Nevertheless, some would possibly suppose that that is nonetheless enticing, because it’s above the FTSE 250 common yield. That is true, however one thing else considerations me.
Bellway has simply pulled out of constructing a agency supply for Crest Nicholson. The bigger rival believes it has a robust sufficient stability sheet to develop organically. With out this deal, it’ll possible make it tougher for Crest Nicholson to get again to monetary well being rapidly. The inventory fell 15% final week when the information was introduced.
Subsequently, I see future dividends underneath strain of being lower once more. Till the agency begins to carry out higher, it doesn’t look enticing to me. In fact, I could possibly be mistaken. Homebuilders ought to profit from decrease rates of interest right here within the UK. This could make mortgages extra inexpensive and supply larger demand for property gross sales.
