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Searching for income as dividends tumble

Investors must be wary of value traps when hunting income
Searching for income as dividends tumble

Last week Shell (RDSB) made the monumental decision to cut its dividend; with many of the UK’s most bountiful pre-crisis income stocks slashing their pay-outs over the past six weeks, income investors are struggling to know where to turn.

  • Our dividend yield screen is finding reliable income stocks thin on the ground and even some of the companies that rank well (thanks to past generosity and in some cases special dividends last year) could be value traps. For example, in 2020 recruiter Hays (HAS) has already cancelled some payments to shareholders. 
  • Mining giant Rio Tinto (RIO) is expected by analysts at RBC to cut its dividend this year ($2.73 to $1.24 per share), so investors shouldn’t be seduced by the trailing yield being over 9 per cent now.
  • Income investors may look to investment trusts which manage diverse portfolios and can also manage their capital positions to help maintain dividends in lean times. Several income-focussed investment trusts score well on our large cap and small cap screens this month, although not one gets full marks.
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