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5 Signs of a Questionable Dividend<br />Todd Wenning, Advisor<br />Motley Fool Dividend Edge<br />1<br />
202 UK companies cut their dividends in 2009 alone, whilst 60 more froze their payouts -- costing investors £1.3 billion, ...
The iShares FTSE UK Dividend Plus ETF (IUKD) had a number of major dividend cuts in 2008-2009. It’s still recovering. <br ...
The market is good at anticipating dividend cuts and will often call the yield higher (and the share price lower)<br />Be ...
Avoid companies in decline<br />These companies will typically have flat-to-declining sales<br />Another red-flag: Rising ...
Avoid companies with interest coverage (EBIT / interest expense) of less than three times<br />Creditors get paid first; i...
A company whose dividend growth has stopped or stalled could be in the process of rethinking its dividend policy<br />Key ...
Avoid companies with low earnings- and/or free cash flow-based dividend cover<br />If companies aren’t able to generate en...
9<br />Thanks for Reading!<br />For more information, please visit: http://dividendedge.fool.co.uk<br />
This presentation is intended for UK investors.  It contains general educational information only and is not intended to d...
The prices of all shares, and the income from them, can fall as well as rise.<br />You run an extra risk of losing money w...
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5 Signs of a Questionable Dividend

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We consider these five factors to be common traits of dividends that are at risk of being cut or suspended.

For more information on Motley Fool Dividend Edge, please visit http://dividendedge.fool.co.uk

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Transcript of "5 Signs of a Questionable Dividend"

  1. 1. 5 Signs of a Questionable Dividend<br />Todd Wenning, Advisor<br />Motley Fool Dividend Edge<br />1<br />
  2. 2. 202 UK companies cut their dividends in 2009 alone, whilst 60 more froze their payouts -- costing investors £1.3 billion, according to data from Capita Registrars.<br />A cut or suspended dividend can impair long-term returns (see next slide)<br />2<br />Why Care?<br />
  3. 3. The iShares FTSE UK Dividend Plus ETF (IUKD) had a number of major dividend cuts in 2008-2009. It’s still recovering. <br />3<br />Still playing catch up with the market...<br />
  4. 4. The market is good at anticipating dividend cuts and will often call the yield higher (and the share price lower)<br />Be wary of any yields that are more than two times the FTSE A/S average (currently 6%-plus)<br />Example: HMV Group – dividend cut in 2011<br />4<br />An Abnormally High Yield<br />Used with permission of Bloomberg Finance, LP<br />
  5. 5. Avoid companies in decline<br />These companies will typically have flat-to-declining sales<br />Another red-flag: Rising inventory as a % of sales<br />Example: Eastman Kodak (US)<br />5<br />Declining Sales<br />
  6. 6. Avoid companies with interest coverage (EBIT / interest expense) of less than three times<br />Creditors get paid first; if the company can’t afford interest payments, a dividend cut is more likely<br />Example: Debenhams<br />Last dividend cut: 2008<br />6<br />A Very Weak Balance Sheet<br />
  7. 7. A company whose dividend growth has stopped or stalled could be in the process of rethinking its dividend policy<br />Key metrics: Dividend growth rates<br />Example: GKN<br />Last Dividend Cut:2008<br />7<br />Stalled Dividend Growth<br />
  8. 8. Avoid companies with low earnings- and/or free cash flow-based dividend cover<br />If companies aren’t able to generate enough cash to pay the dividend, the payout will likely be at risk<br />Examples:<br />8<br />Lack of Dividend Cover<br />
  9. 9. 9<br />Thanks for Reading!<br />For more information, please visit: http://dividendedge.fool.co.uk<br />
  10. 10. This presentation is intended for UK investors.  It contains general educational information only and is not intended to direct you to any specific investments. <br />Please see last page for full risk warning.<br />All data provided by Capital IQ, as of 1 June 2011<br />Disclosures: None<br />10<br />Notes<br />
  11. 11. The prices of all shares, and the income from them, can fall as well as rise.<br />You run an extra risk of losing money when you buy shares in certain smaller companies including "penny shares".<br />There is a big difference between the buying price and the selling price of these shares. If you have to sell them immediately, you may get back much less than you paid for them. The price may change quickly, it may go down as well as up and you may not get back the full amount invested. It may be difficult to sell or realise the investment.<br />You should not speculate using money you cannot afford to lose, or rely on dividend income for non-discretionary living expenses.<br />Some securities may be traded in currencies other than sterling, and may also pay dividends in other currencies. Changes in rates of exchange may have an adverse effect on the value of these investments in sterling terms. You should also consult your stockbroker about any additional dealing or administrative charges.<br />We have taken all reasonable care to ensure that all statements of fact and opinion contained in this publication are fair and accurate in all material aspects.<br />Investors should seek appropriate professional advice from their stockbroker or other adviser if any points are unclear.<br />This newsletter gives general advice only, and the investments mentioned may not necessarily be suitable for any individual.<br />Authorised by The McHattie Group, St Brandon's House, 29 Great George Street, Bristol BS1 5QT | Tel: 01179 200 070 | Fax: 01179 200 071 | E-mail: enquiries@mchattie.co.uk<br />The McHattie Group is authorised and regulated by the Financial Services Authority.<br />11<br />Risk Warning<br />
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