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Safe yields find safety in numbers

Safe yields find safety in numbers

Often the biggest risk faced by value investors is that of buying a so-called 'value trap', a share that on the face of it looks cheap. For example, it may boast a high dividend yield. However, what looks like value is a sign that the market is starting to justifiably price in a deterioration in fortunes ahead of further share price declines and an ultimate cancellation of the dividend. A recent high-profile example of such a trap is construction company Carillion. It’s shares looked incredibly cheap on a number of key metrics, such as multiples of earnings and dividend yield, before the company went under, wiping out its shareholders.

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