With the prices of large companies that pay dividends often expensive, it is difficult to find quality high-yielding shares. At this point in the market cycle our dividend yield screen is showing up value companies at the lower end of the market cap scale, rather than recognised long-term income plays.
- Very few companies pass all the quality tests for our Alpha dividend yield screen. Only one FTSE All Share company - Food outlet concessions operator SSP Group (SSPG) - valued over £1bn scores 8/8.
- Out of companies included in the FTSE All Small Companies index, fashion company Superdry (SDRY) and flooring products manufacturer Headlam Group (HEAD) only fail the forward EPS Growth test but as this is an important consideration when buying a smaller company for income, investors should tread carefully.
- High dividend yield can be a value indicator and both Aim companies that score 8/8 have been covered by our small-cap value expert Simon Thompson in the last 18 months. Simon’s investment case for financial services company STM Group (STM) has yet to play out, but he remains positive on the company. On balance, he felt it was time to take profits on Character Group (CCT), which owns a portfolio of iconic children’s brands.
