Chasing yield can be a risky sport. So, to try and help investors from cashing unsustainable dividend yield, investment bankSocit Gnrale publishes a monthly list of high dividend risk companies across developed markets.
Companies that make in onto the list have a dividend yield of 4% or more and a lower-than-average Merton score a measure of credit risk and financial stability.
Here are the five UK companies that pass the screen, and, as a result, according toSocit Gnrale, are most likely to cut their dividend payouts.
Payout concerns
Renewable energy companyInfinis Energy(LSE: INFI) is no stranger to dividend concerns. The company is promising a dividend payout of around 18.50p per share for each of the next three years.
That gives a dividend yield of around 10% at present, but the payout isnt covered by earnings per share. This year the company is set to pay out around 140% of earnings to shareholders.
Infinis annual payout will cost the company around 50m per annum. But with only 66m of cash on the balance sheet at the beginning of this year and net debt of 554m, it looks as if the company will struggle to keep up its extravagant dividend policy.
Management guarantee
Miners feature heavily on Socit Gnrales list of high dividend risk companies.
BothVedanta Resources(LSE: VED) andAnglo American(LSE: AAL) make it onto the list due to falling earnings and weak balance sheets.
Vedantas dividend yield currently stands at 6.2%, although the company is set to make a loss this year.Moreover, Vedantas net debt to equity ratio stands at a staggering 530%.
However, Vedantas management has stated that it intends to maintain the companys dividend payout at present levels. So, the dividend may be safe, but Vedantas financial situation is precarious.
Anglos dividend yield is set to top 5.2% this year, and according to estimates the payout will be covered by around 1.3 times by earnings per share.
Still, Anglo has reported a net loss for each of the past three years, and there could be additional losses to come.
Anglos production costs are far higher than peers, and one of the companys key projects is already three times over budget. That said, the company is currently trying to sell itsiron ore arm, which could give it much neededcashinfusion.
Digging deeper
Dairy Crest(LSE: DCG) makes the list of high dividend risk companies, but its difficult to see why. The companys dividend payout of 21.7p per share equates to a yield of 4.3%. The payout is covered twice by earnings per share.
Nonetheless, if you dig a bit deeper, its clear why Dairy Crest has made the list.
Dairy Crests return on assets has halvedover the past six years. Shareholder equity has slumped by 30% since 2009, and after stripping out exceptional items, the groups dividend is only covered 1.2 times by earnings per share. These numbers signal that the company is struggling.
Oil dependant
Lastly,AmecFoster Wheeler(LSE: AMFW) whichhas made it onto the list following the oil price slump. The company is set to yield 4.8% this year and the payout is covered twice by earnings per share.
However, the sustainability of Amecs payout is dependent upon the demand for the companys services, which is correlated to the price of oil. So, if the price of oil starts to push higher, Amecs payout is likely to become more secure.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.