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This company has a 9% dividend yield!

Everyone knows the saying: “it’s too good to be true”. One of the great things about sayings such as these is that they often encapsulate a good rule of thumb for people to live by. Rules of thumb are in essence screening tools — in other words, they generally create a ‘base case’ and offer protection from doing something stupid.

This makes rules of thumb handy tools because doing something stupid is a very real danger amongst humans in general and investors in particular!

A 9% dividend certainly might sound too good to be true and in many cases it indeed is too good to be true. For example, based on last year’s dividend payments GUD (ASX: GUD) trades on an historical dividend yield of 9%, however with the dividend expected to decline from 52 cents per share (excluding the special dividend) to 38.2 cps, shareholders are unlikely to receive a 9% yield going forward.

Mobile accommodation manufacturer Fleetwood (ASX: FWD) is another example where a significant fall in earnings due to the slowdown in the mining sector is forecast to cause the dividend to decline. Again, the historic dividend is not a good indicator of the future dividend.

So the key is to find a company where the earnings are sound and the dividend is maintainable.

McPherson’s (ASX: MCP) is a marketer of housewares, personal care, household consumables and appliances. While the company is perhaps not well known, many of its branded products are. Those brandnames include Manicare beauty products, Stanley Rogers cutlery, Jamie Oliver’s Kitchen, Multix foil and Euromaid appliances.

According to Morningstar Research, McPherson’s is forecast to deliver shareholders with dividends of 14 cps this financial year (FY) and rise to 15.3 cps in FY 2015. With the share price sitting at $1.53 this implies a forecast dividend yield of 9.1% in FY 2014.

Foolish takeaway

With deposit accounts paying such measly interest rates the ‘chase for yield’ continues. While often there is a trade-off between growth and income, McPherson’s 9% yield certainly has appeal.

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