The Motley Fool

Is Genworth Mortgage Insurance Australia a dividend trap?

The Reserve Bank of Australia’s governor has suggested the next move in the official cash rate will be up, but this may not happen for a while and it may be a slow trajectory upwards.

Investors looking for yield should be wary of buying companies based on a high dividend yield. A high dividend can be due to:   

  • A falling share price 
  • Company going nowhere
  • A special one-off dividend 

Genworth Mortgage Insurance Australia (ASX: GMA) is one of the highest dividend payers with a trailing franked dividend yield of 15.29% per annum, but the share price has fallen 25% in a year on a weak outlook for earnings growth (1 year growth of -9% forecast by JB Were).

The PE ratio is 10.2, which is relatively low, but for the same reason the dividend yield is high. As reported by on 11 April, UBS changed its rating from sell to neutral with a price targt of $2.30, which the share price beat at $2.31 at the time of writing.

But, although there may be limited downside, what is the upside?

Gemworth is paying out 50%-80% of underlying NPAT as dividends, so that doesn’t leave much room for investing.

There may not be a housing crisis yet to impact profits but the housing market is showing signs of softening and is likely to continue its downward trend. 

Other strong gross dividend payers, which are trading on low PE ratios are (see table) G8 Education Limited (ASX: GEM), Fortescue Metals Group Limited (ASX: FMG), Telstra Corporation Ltd (ASX: TLS) and Alumina Limited (ASX:AWC). See the table below for more info:

If you like dividend shares why not discover The Motley Fool’s favourite pick?

OUR #1 dividend pick to grow your wealth over the new financial year is revealed for FREE here!

Financial year 2018 is here and The Motley Fool’s dividend detective Andrew Page has revealed his must buy dividend share to grow your wealth in 2018.

You might not know this market leader's name, but it's rapidly expanding into a highly profitable niche market here in Australia. Even better, the shares boast a strong, fully franked dividend that should balloon in the years to come. In other words, we're looking at the holy grail of incredible long-term growth potential AND income you can watch accruing in your account in real time!

Simply click here to grab your FREE copy of this up-to-the-minute research report on our #1 dividend share recommendation now.

Motley Fool contributor Rosemary Steinforth owns Telstra Limited. The Motley Fool Australia owns shares of and has recommended Telstra Limited. The Motley Fool Australia has recommended G8 Education Limited. 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 Scott Phillips.

5 ASX Stocks for Building Wealth After 50

I just read that Warren Buffett, the world’s best investor, made over 99% of his massive fortune after his 50th birthday.

It just goes to show you… it’s never too late to start securing your financial future.

And Motley Fool Chief Investment Advisor Scott Phillips just released a brand-new report that reveals five of our favourite ASX stocks for building wealth after 50.

– Each company boasts strong growth prospects over the next 3 to 5 years…

– Most importantly each pays a generous dividend, fully franked.

Simply click here to find out how you can claim your FREE copy of “5 ASX Stocks for Building Wealth After 50.”

See the stocks now