Stock filters provided by online trading platforms can be a useful tool when used correctly, but it is important that investors are not misled by out-of-date or inaccurate data.
One of the biggest areas that I think investors can be fooled by is quoted dividend yields.
For example, it is not uncommon for companies to cut their dividends, yet this may not be reflected in the data for weeks or months later.
Another way investors can be fooled is by relying on dividend forecasts that are too optimistic. In this regard, investors should look at whether the company's earnings can support the dividend payout and, perhaps more importantly, whether the dividend can be funded from operating cash flows.
With those points in mind, here are three shares that I believe have very shaky-looking dividend yields right now:
Telstra Corporation Ltd (ASX: TLS)
It is always concerning when a company pays out a dividend that is greater than its current earnings. This is exactly what has happened with Telstra after it just declared a 15.5 cent per share interim dividend but only generated earnings per share of 14.8 cents. This is clearly an unsustainable situation and one that could become a much bigger problem unless the company finds a way to quickly fill the looming $2 billion to $3 billion earnings hole caused by the NBN. While a 6.7% dividend yield looks good now, investors could face a far bigger loss of capital if earnings continue to fall.
Ainsworth Game Technology Limited (ASX: AGI)
According to CommSec, Ainsworth Game Technology is trading on a dividend yield of 5.6%. This appears quite attractive but upon closer inspection investors will discover the poker machine maker actually suspended its interim dividend as a result of a big fall in first-half profits and operating cash flow. The company has promised a stronger second-half performance on the back of improving conditions in North America, but investors are still not guaranteed the dividend will be reinstated.
Platinum Asset Management Limited (ASX: PTM)
Platinum is one of the highest yielding fund managers on the ASX, but this is more a result of a declining share price, rather than any increase in dividends. In reality, investors were lucky not to see its interim dividend cut last month after the company reported a 20% decline in first-half profits. Unfortunately, the outlook for Platinum is not overly positive with its latest funds under management update revealing another big outflow of funds during February. As a result, I wouldn't bank on its current 6% dividend yield being maintained and believe there could be a dividend cut in the not-too-distant future.
