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Big miners cut from S&P/ASX 100 and 200: Is there more pain to come?

From 19 December there will be one less mining company in the ASX 100 and two less in the ASX 200 following the quarterly rebalancing of the index by ratings agency S&P.

S&P/ASX 100 (INDEXASX: XTO) Changes

Two struggling stocks have been subbed out for two shining lights.

Iron ore miner and steel producer Arrium Ltd (ASX: ARI) and struggling retailer Myer Holdings Ltd (ASX: MYR) have been cut from the index and replaced with recently listed hospital operator Healthscope Ltd (ASX: HSO) and entrepreneurial phone and internet provider TPG Telecom Ltd (ASX: TPM).

Shareholders of the two companies included in the index can expect greater demand for the companies’ shares, while removal from the index is unlikely to help Arrium or Myer escape from the current issues.

S&P/ASX 200 (INDEXASX: XJO) Changes

The changes to the ASX 200 are even more representative of the changing Australian business landscape.

Gold mining companies Medusa Mining Limited (ASX: MML) and Resolute Mining Limited (ASX: RSG) have been removed after plunging over 55% each over the last six months, while innovative communications groups APN News and Media Limited (ASX: APN) and Vocus Communications Limited (ASX: VOC) have been deservedly added.

Misleading Dividends

The companies removed from the ASX 100 are terrific examples of why investors need to tread carefully when looking for income stocks. Based on many of the online share price websites, Myer is offering a 9.5% yield, while Arrium is offering an incredible 42% yield.

The reason why these yields are so high is because they are trailing yields, i.e. the yield based on today’s share price but the dividend income paid over the last 12 months. This is rarely a reliable indicator of what the forward yield, or the yield based on today’s share price but the dividend income paid over the next 12 months, will be.

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Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie

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