Are these dividends too good to be true?

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.

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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.

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