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The Goldilocks yield

Note that the term is now ‘income’ fund, no longer ‘high yield’, a description that is at best otiose and at worst obsolete because those companies whose shares used to yield something properly ‘high’ will no longer be able to afford dividends. Okay, I exaggerate, but it is not just because dividend payouts are set to be slashed in 2020 that the notion of ‘high yield’ is out of place. Beyond that – when, hopefully, the global economy is seriously recovering – the corporate dial will be reset for an acceptable amount of dividend that a company should distribute.

If less is to be paid out, dividends will be lower, yields will be lower, there will be less to go around even when normality resumes. All the more important, therefore, that investors should be confident their income fund holds shares whose dividends can be relied upon. Hence the focus on cash flow.

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