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AlphaScreens: Quality yield versus value traps

There aren't rich pickings for quality high yield shares and it's important to filter contenders.
AlphaScreens: Quality yield versus value traps

It’s a case of “as you were” at the top of our dividend yield screen rankings, with travel outlet concessions business SSP Group (SSPG), home products firm Norcros (NXR), and equipment renter VP (VP.) still the only FTSE All Share companies to pass all the tests. When considering the long-term sustainability of the yields on offer, it is noteworthy that SSP has paid specials in the last twelve months and all three companies have negative net cash positions.

  • Very few larger companies score well. Utilities company SSE (SSE) would have been a dividend stalwart for years. It currently yields 7.6 per cent but the two tests it fails – dividend cover and interest cover – offer clues as to why investors should exercise a degree of caution.
  • Insurer Prudential (PRU) also passes 6/8 tests. It fails the criteria of a low market beta and the requirement for EPS growth in each of the next two years. That said, this is a business with good long-term exposure to growing Asian markets and the de-merger of its UK business is expected to help it create longer term value for shareholders.
  • Aim-listed firms do best against our slightly tweaked small company tests. Yield is a sign of value as much as anything with smaller businesses and given some of our top-rankers are the sort of businesses that might suffer in a recession, these aren’t shares to be bought as long-term income plays.
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