Join our community of smart investors

Avoid crazy risk as a trade-off for yield

Interesting companies are flagged by our screen, but they aren't traditional income plays
Avoid crazy risk as a trade-off for yield
  • Cyclical businesses rank highly on our screen
  • Income is not the primary reason to own many of these shares

As 2021 draws to a close, investment companies and cyclical stocks once again dominate the  list of FTSE All Share companies that top our dividend screens. Safe dividend paying stocks have not been easy to come by for some time at a reasonable price. Crowded trades have seen percentage yields diminish on the safer investments out there, and in many ways the results of our screens are a source of ideas for value rather than income investors.  

One of the reasons real estate investment trusts (Reits) rank highly is because they are required to pay 90 per cent of profits from their rental income as dividends. Other types of investment trusts that rank highly include VPC Specialty lending. The underlying assets for this trust are asset backed loans and other debt products that facilitate lending to parts of the economy under-served by traditional banks. It’s an interesting asset class but is not without risks, especially given the uncertain economic outlook harming the prospects for potential borrowers. 

Dividends are a nice bonus for investors in Aim companies, but it’s probably fair to say these  shares  are primarily  bought for their growth and/or recovery prospects.  Companies with cyclical risks are prominent in the screen results this month with Caledonia Mining (CMCL), Springfield Properties (SPR) and Michelmersh Brick Holdings (MBH) the only companies to score full marks. 

Other high ranking Aim companies include Steppe Cement (STCM), which pays an attractive dividend but, despite an overall positive upward trajectory, has been a bumpy ride for shareholders. This is the type of risk-reward trade-off investors should consider when looking at Aim stocks on the strength of their yield.

Download PDF