The yield illusion

Many high-dividend paying companies will find it hard to sustain their payout

While many stocks at their current market price offer a mouth-watering dividend yield, in reality they are a trap as the financial health of many of these companies are deteriorating. Commodity stocks top the dividend yield table and companies like Cairn India, NMDC, Oil India, Vedanta and others now have a dividend yield in excess of 5%. However considering the recent correction in commodity prices, many of them will have lower operating cash flow and that will impact their ability to sustain last year’s dividend payout.