“Simply screening for yield is a dangerous business,” said Page who co-manages the Guinness Global Equity Income Fund.
To illustrate his point, Page screened for companies in global developed markets with dividend yields above 4%. What he found was that these organizations shared some troubling characteristics in common, the first being high concentration in high beta sectors like finance and industrials.
He likewise found that there was a disturbing trend between higher dividend yield and poor long-term dividend growth track record.
Page said that 30% of his set of global companies have never grown their dividend in the last 10 years. And 67% have not grown their dividend more than twice over the same period, he added.
Equally disconcerting was the correlation between high dividend yield and high risk of a future dividend cut, Page stated. In reality, he said, there is a huge disconnect between dividend yield forecasts and the actual yield achieved.
And those same companies, tended to perform poorly in anticipation of a dividend cut, he said.
Source: SG Cross Asset Research/Equity Quant
