Are these dividends too good to be true?

Can these 3 companies sustain their existing dividend payments? Financial results suggest otherwise

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Despite the big four banks upping their deposit interest rates this month, the best investors could get is still around 3% in a high-interest account.

You also have to pay tax on that and if you take inflation into account, holding cash in a bank account is likely to see the value of your cash stay exactly the same. When you consider many companies on the ASX are paying fully franked dividends of more than 5% – which gross up to more than 7.1%, you can see why investors are still on the hunt for yield.

Here are three companies with dividends that might be too good to be true…

National Australia Bank (ASX: NAB)

After reporting a 3% fall in cash earnings, NAB could be forced to cut its dividend after paying out 99 cents at its most recent half-year result. While all the banks are generally loath to cut dividends, NAB's capital adequacy ratio declined over the quarter – suggesting it probably wasn't the wisest decision. Consensus forecasts suggest NAB could be one of the first to cut its dividend this financial year. Investors need to take NAB's 7.3% current trailing yield with a pinch of salt.

Platinum Asset Management Limited (ASX: PTM)

Currently sporting a trailing fully franked dividend yield of 6% – which grosses up to 8.6%, the fund manager is forecast to deliver lower earnings and dividends than last year. Platinum cut its interim dividend to 16 cents in February from 17 cents the previous year (but it also paid a 10 cent special dividend in 2015). That suggests the final dividend could also be cut.

Transurban Group (ASX: TCL)

As I explained in Why I'm avoiding Transurban Group, the toll road operator pays out virtually all of its cash flow per security as dividends. That leaves nothing for the company to pay down its $12 billion of debt – which it will have to consider paying down at some stage. Toll roads have to be handed back to their original owners debt-free at the end of their concessions and Transurban's M5 Motorway in Sydney toll road expires in 10 years' time.

Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga 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.

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »