Did you know that there are more than 200 companies on the ASX with trailing dividend yields of more than 5%?
Not all of them will manage to pay those same yields next year and be able to grow dividends into future years either. As an example, Titan Energy Services Limited (ASX: TTN) sports an 18.8% dividend yield, but recently slashed its profit forecast for the year ahead, likely to lead to similar falls in the future dividend.
Coventry Group Limited (ASX: CYG) is another example, paying a dividend of 33 cents per share in 2014, despite earnings of just 1.6 cents per share. That's clearly unsustainable.
So investors need to consider a number of other factors, other than just the yield…
- Payout ratio – if the payout ratio is more than 100% of earnings, the company is unlikely to be able to maintain the dividend.
- Future earnings – if the company expects to have materially lower earnings next year, it's likely the current dividend will be cut.
- Other calls on the company's capital – company's expecting to have large capital expenditure requirements may well slash the dividend, unless they raise new capital or borrow debt.
Here are 10 companies forecast to pay high dividend yields in the 2015 financial year, according to broker Morgans.
| Company | 2015 forecast yield |
| Pact Group Holdings Ltd (ASX: PGH) | 5.6% |
| Cardno Limited (ASX: CDD) | 6% |
| AP Eagers Limited (ASX: APE) | 4.9% |
| Seymour White Ltd (ASX: SWL) | 5.1% |
| Ruralco Holdings Ltd (ASX: RHL) | 5.4% |
| GUD Holdings Limited (ASX: GUD) | 6.3% |
| Hills Ltd (ASX: HIL) | 6% |
| Programmed Maintenance Services Limited (ASX: PRG) | 6.6% |
| GWA Group Ltd (ASX: GWA) | 5.2% |
| Retail Food Group Limited (ASX: RFG) | 5.1% |
Source: Morgans
While a number of companies on the list look appealing, several have disappointed over many years. Ruralco Holdings for one has delivered average annual shareholder returns of 5.5% over the past decade, while Hills has lost shareholders an average of 5.8% each year in the same period.
There are also a number exposed to declining mining investment, including Cardno and Seymour White.
For my money, I'd only be seriously looking at Retail Food Group from the above group, given its continued strong growth in earnings and fully franked dividends.
