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Top fund manager identifies 4 shares to help you avoid a dividend trap

Listed investment company (LIC) QV Equities Ltd (ASX: QVE) – the ‘QV’ stands for Quality and Value – is managed by highly regarded fund manager Investors Mutual.

The latest Investment Update from QV Equities has some advice worth taking for investors who are currently chasing yield in this low interest rate environment.

A poignant warning

“Investors need to recognise that the investment risk on shares is generally greater than on interest-bearing assets: share returns are more volatile; and some companies may have to cut their dividends if their earnings disappoint.”

Some good advice

The important thing is to seek out dividends that are sustainable or, better still, are likely to rise over time. Investors particularly need to avoid “dividend yield traps”: a high dividend yield might simply reflect the collapse in a company’s share price in anticipation of an imminent cut in its dividend.”

So how is Investors Mutual positioning QV’s portfolio so that it can ultimately benefit from the types of companies which have dividends that are hopefully sustainable and growing?

Here are four holdings mentioned in the latest update.

Flight Centre Travel Group Ltd (ASX: FLT) has a rock solid balance sheet thanks to its large cash balance. While we don’t know what Investors Mutual is forecasting, according to forecast data supplied by CommSec, shareholders are expected to receive dividends totalling 148 cents per share (cps) in financial year 2017. With the share price falling recently to around $32, the implied yield is 4.6%.

Steadfast Group Ltd (ASX: SDF) has a trailing yield of 2.5% but given its defensive earnings base and market-leading position the outlook is positive.

AGL Energy Ltd (ASX: AGL) is forecast to increase its dividend to 76.6 cps in FY 2017 according to CommSec. With the stock trading at just under $19, the expected fully franked yield is 4%.

ASX Ltd’s (ASX: ASX) dividend is forecast to grow to $2 a share in FY 2017 according to forecast data from CommSec. A share price of $45 means a forecast yield of 4.4%.

Forget companies cutting dividends like BHP and Rio Tinto when you can get GROWING dividends.

This "dirt cheap" company. is growing like gangbusters, and trading on a fat dividend yield, FULLY FRANKED. With interest rates set to stay at these low levels for years to come, for income-hungry investors, including SMSFs, this ASX company could be the "Holy Grail" of dividend plays for 2016. Click here to gain access to this comprehensive FREE investment report, including the name of this fast growing ASX dividend share. No credit card required.

Motley Fool contributor Tim McArthur has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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