moorfield wrote:Itsallaguess wrote:
If I wish to highlight the dangers of ultra-high yields to income-investors, having plenty of scars to show that such dangers do exist, then I will continue to do so, and if I want to ask where this 'due dilligence' is that others might have carried out that might suggest such ultra-high yields are OK to invest in, then I think that's fair as well...
Yup, well said in a fair post IAAG. I have those scars too, so understand perfectly why you might want to ask that.
I have suggested here in the past that one way to avoid the ultra highest yields (when selecting a new HYP) might be to work upwards from the lowest yield, rather than downwards from the highest yield. Another way might be to simply rule out anything above a certain level, I use 2*CTY as a coarse "ceiling", which has helped me to avoid buying VOD, IMB, RDSB at the "wrong time" in recent years.
Why is RIO's yield so high relative to others now? Because the market believes its current dividend is unsustainable in the long term, surely.
I agree with IAAG, "due diligence" on high yielding shares is not often discussed on this board, and I feel more on this topic would be useful. I personally look at dividend record and cover, and have also looked at free cash flow and shorting activity, but it would be useful to know what other HYPers actually do. Anyway, maybe I will start another thread on this.
Coming back to RIO, in a way it is not an ideal HYP share, because you have to accept that the dividend will be a roller-coaster of boom and bust over the cycle, compared to the ideal of a steadily rising dividend keeping ahead of inflation. Having said that, I think most of us accept this and include commodity shares in our portfolios for the high income they deliver, and rely on a healthy cash buffer to smooth out the peaks and troughs (in the withdrawal phase).
FD
