Finding reasonably priced, solid income paying stocks is incredibly difficult nowadays. Thanks to the monetary policy pursued by central banks over the past decade, risk has been strangely priced and some shares have become bond proxies in portfolios. Consequently, there aren't rich pickings for our large cap dividend yield screen but some of the tests failed by larger companies suggest questions investors should ask when assessing the sustainability and growth prospects of pay-outs.
- Home consumer products firm Norcross (NXR), travel retail outlet concessions holding company SSP Group (SSPG) and equipment rental business VP (VP.) are the only FTSE All Share companies that pass all our dividend yield screen tests.
- Of the large-cap companies in the index, it is interesting to note which tests are failed by traditional income stocks. Tobacco giant Imperial Brands (IMB) and defence company BAE Systems (BA.) fall short against the same two tests – dividend cover and cash conversion. This should be food for thought, especially for investors tempted by the juicy yield IMB is offering.
- Utilities company SSE (SSE) also fails the dividend cover test, as well as the interest cover requirement, indicating that the expense of its considerable long-term borrowing needs to be examined as this undermines sustainability of the dividend.
- International Consolidated Airlines Group (IAG) shows an attractive yield but this is hardly a defensive industry - it is at the mercy of economic cycles and oil prices - and strikes at British Airways are a further reason to tread with caution.
