Few stocks have a dividend yield of 15% or more. And when they do, the dividend has usually already been cut drastically or suspended altogether.
For example, I recently sorted my stock screen by dividend yield and I got Provident Financial and Capita at the top, with dividend yields of 20% and 17% respectively.
In both cases, the dividend has now been suspended, so the actual dividend yield that investors will receive (at least in the short term) has quickly fallen to zero.
However, there is a third company on my stock screen which has a dividend yield exceeding 15%.
That company is Connect Group, the UK’s largest news wholesaler and leading deliverer of newspapers and magazines to almost 30,000 retailers.
So far at least, there has been no mention of a dividend cut or suspension, which is surprising.
Never one to ignore a potential bargain, I decided to take a closer look at Connect Group and do a full review for this month’s Master Investor magazine:
Can a 15% dividend yield ever be sustainable?
And speaking of Master Investor, their annual event for investors will be in London on 17th March. You can find out more about the show here.
Will read this article later John — but have you looked at PZ Cussons this morning?
Having sold in January I feel relieved to have called it right.
The share price is hitting 201 as I type – down 27%
Is this your entry price perhaps?
LR
200p for PZC is getting there I think. It would yield 4% which isn’t bad, but it isn’t great either. The company’s 10yr growth rate is just 3%… so 3% growth plus 4% yield gives a returns estimate of 7%/yr. That isn’t very exciting.
John – Agreed, I consider myself fortunate in getting out after 2 years with just under 11% a year which was quite respectable, plus avoided a near 30% loss of capital from my sell price.
It’s getting rather mean out there in the market. Friend of mine had dinner with a bunch of fund managers who seem convinced that Jeremy is next for the chair and that he’ll introduce a draconian wealth tax.
I’m just collecting my things together John to make a clean exit before the event !!
Although on reflection both my offspring have entered the property market and are doing as good a job as Jeremy in relieving me of the ackers!
LR
That’s what kids are for. My son’s only eight and he’s already a pro at emptying my wallet.
Read the article, great description of it’s acquisition and debt history.
It’s not for me however, so I’ll take it as a pass !!
I mean 15% – what could possibly go wrong?
LR
There one thing we shouldn’t discount when studying Connect Group is the sudden collapse of sales in its core business. I believe a look at Trinity Mirror (which is seeing circulation declining by 10% per annum) is a red flag. (P.S. Triniity is buying businesses to make up for lost sales)
Connect Group is fighting in a market with no new customers and the customer base declining steady until it reaches an age group that stops buying the physical copies.
Hi Walter, yes that’s definitely the key problem. The core business is in decline, there’s no doubt about that. But how far will it decline an how fast? So far the decline has been low single digit, so the big question is can Connect acquire its way out of newspaper delivery fast enough or not?
Nobody knows, and that’s why the yield is 15%!
John
As you say, nobody knows! So if nobody knows, why would you invest?
The other issue is that businesses in decline tend to look for something else to deploy their capital, unless to focus on their core market and make as much as possible out of it. It is very easy to wrongly allocate capital.
I will stay with Facebook (as a distribuitor of news) for the moment where I have been lucky enough to sell half of the portfolio before the problem. That was a 10 bagger for me in $ and a lot more in £ because of Sterling devaluation.