A high dividend yield is not always a good indication of a company being good value. In particular, there have been some disappointing results or downgrades from some companies that are top dividend payers.
These include:
G8 Education Ltd (ASX: GEM)
G8 Education has seen its share price fall on the back of a challenging FY17 and a slow start to FY18, due to higher vacancies from increased supply, although the situation seems to be improving slightly. The changes to childcare funding from July 2018 may increase the demand from low to middle-income families, but the flow-through impact on earnings will not be until next year at least. G8 Education is trading on a forward price-earnings-ratio (PER) of 12x, and the annual dividend yield is 6.7%, fully franked. The company indicated that there will be further guidance on earnings.
Telstra Corporation Ltd's (ASX: TLS)
The Telstra share price has fallen 25% to $3.26 at the time of writing. The telco's shares are still suffering from concerns about plans announced last year to reduce dividend payments, and the Labour government's announcement of proposed changes to retirees receiving franking credits as cash. But, in the last few days, the shares have bounced off an almost ten year low and at these prices the dividend yield looks pretty good. The company is trading on a forward PER of 10x and pays an annual fully franked dividend yield of 8%.
Harvey Norman Holdings Ltd (ASX: HVN)
Harvey Norman's share price has fallen over 20% to $3.47, trading on a PER of 10x and paying an annual dividend yield of 7%, which is fully franked. Poor half year earnings announced in February, including some significant write-downs and a cut in the dividends haven't helped. Harvey Normans' Chairman and founder, Gerry Harvey told The Australian earlier in the year that the market has got it wrong as the underlying first half result was good before write-downs. But, the market is still selling the shares down. At these levels there may be some value.
