The key to yield investing – avoiding dividend traps

At the end of August 2015, Myer (MYR) had a historical gross yield of 14.8% making it look attractive to many funds and investors seeking high yield. On 1 September MYR announced it will not pay a final dividend this fiscal year, and it would in fact be raising money from investors in the form of a dilutionary entitlement. According to Plato, it has identified Myer (MYR) and a number of other Retailer, Small / Mid Cap Mining, Energy and Mining Services companies as likely dividend traps (refer to the graph below) based on recent cuts in the company’s dividend or is forecast by Plato to cut their dividend. Reducing exposure to high yield stocks that are identified as likely dividend traps should potentially avoid capital losses for investors. In comparison, 3 of the top 5 Australian equity ETF's by fund size (according to Morningstar) hold 3 or more of the companies identified by Plato as being dividend traps. (VIEW LINK)