3 blue-chip shares I think dividend investors should avoid

There is little doubt that high-yielding shares have been extremely popular over the last few years, and with Australian interest rates expected to remain at historically low levels for a while longer still, I expect many investors will continue to seek out shares that pay attractive dividends.

With close to 300 shares currently offering dividend yields of 4% or more, the choice for investors can be quite overwhelming.

Although many investors would probably consider blue-chip shares as the safest option when it comes to dividends, I think investors need to be more cautious when considering some of the big name shares on the ASX.

Here are three blue-chip shares that I think investors should think twice about before investing in for their dividends:

QBE Insurance Group Ltd (ASX: QBE)

QBE has proven to be a disappointing long term performer, both from a share price performance perspective and from its inability to pay consistently higher dividends. Although the prospect of higher US interest rates is likely to be a tailwind for the company’s investment returns moving forward, the outlook for the core insurance business remains quite bearish. On top of this, insurers like QBE are at the mercy of Mother Nature which means dividend payments in any given year are never certain. Some investors may be tempted by the current dividend yield of nearly 5%, but I would prefer to wait until business conditions improve and US interest rates move significantly higher from current levels.

AMP Limited (ASX: AMP)

AMP is another blue-chip company that has failed to meet market expectations over a long period of time. In fact, the shares have delivered an average total shareholder return (including dividends) of -0.1% each year over the past 10 years. This means investors who purchased the shares 10 years ago, and who are still holding today, would have been far better off investing their money in cash. This is a sobering thought and although AMP is promising to deliver better returns in the future through a turnaround of its life insurance business, I don’t think investors should give management the benefit of the doubt just yet.

Scentre Group (ASX: SCG)

There is no question that Scentre Group owns the highest quality portfolio of shopping centres throughout Australia and New Zealand, but investors need to make sure they pay a reasonable price for these assets. This is especially the case in the current environment where interest rate sensitive shares like Scentre Group could come under further pressure. Not only will higher interest rates make its dividend yield less attractive compared to other income assets, but the company will also face higher finance costs on the $11.4 billion worth of debt it currently holds on its balance sheet. As a result, I don’t think the current unfranked dividend yield of 4.9% is enough compensation for the risks involved in owning the shares right now.

If you are interested in quality dividend shares, then I would recommend this top dividend share instead. A strong yield and potential share price gains make this a great investment idea in my opinion.

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Motley Fool contributor Christopher Georges 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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