Don't Chase High Yields

Investors should be wary about simply looking for the highest yields on offer. History shows that dividends from the highest yielding stocks can often be unsustainable

Henderson Global Investors 12 May, 2014 | 4:28PM

This article is part of Morningstar's "Perspectives" series, written by third-party contributors. Here, Ben Lofthouse and Andrew Jones, co-managers of the Henderson Global Equity Income Fund discuss why sustainability is important when it comes to income

In the current low interest rate environment investors are increasingly looking to equities for an attractive level of income. We are advocates of equity income investing for long-term total returns, and there are still lots of interesting opportunities around the world. Investors, however, should be wary about simply looking for the highest yields on offer. History shows that dividends from the highest yielding stocks can often be unsustainable.

That is one of the reasons why we believe investing across a diversified list of moderate paying companies, with the potential to offer both dividend and capital growth, is the best approach.

Sustainable Yields

The chart looks at the sustainability of dividend yields across developed markets between 1995 and February 2014 and highlights the risk of chasing high yields without considering the underlying strength of the company. It shows that in general, an estimated yield above 5% is less likely to be realised than a forecast yield of 5% or below.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Henderson Global Investors  Henderson Group PLC is engaged in the provision of investment management services.

Audience Confirmation

By clicking 'accept' I acknowledge that this website uses cookies and other technologies to tailor my experience and understand how I and other visitors use our site. See 'Cookie Consent' for more detail.

  • Other Morningstar Websites
© Copyright 2020 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies