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The next “High-yield investment trap” you must avoid now

by , 18 November 2019
The next “High-yield investment trap” you must avoid now
In April 2019, I warned investors about Rebosis - A JSE listed property company that had a dividend yield of 57%.

You see, at the time, a yield this high was very unusual for a company listed in SA. So I warned investors not to fall for this “high yield investment trap”

And, since then, the company cut its dividend completely and its shares have plummeted from 162c to 32c - around an 80% drop!

That's the kind of loss you're looking at when you fall for these investment traps!

So, today I'm going to reveal the next one you must avoid right now…
 
This 18% dividend yield is not worth your money
 
I’m talking about Indluplace Properties (JSE: ILU). Indlu is one of the largest owners of residential properties in SA’s major cities.
 
Since listing in 2015, the company’s built a solid, residential property portfolio that provides a mix of affordable rental accommodation. 
 
Today, the company’s dividend yield stands at 18.63% - unusually high for a JSE listed company.
 
Now as I said with Rebosis: When you see a company with an extremely high dividend yield, something must have happened i.e. the company’s share price has crashed…
 
Looking at Indlu share price…
 
Over the last five years, shares are down nearly 60%.
 
This year alone, shares have fallen 40%!
 
Why?
 
Firstly, the affordability of its tenants has dwindled, as wage growth and credit health has slipped.
 
Consequently, the company has faced challenges like non-paying tenants (who can’t afford housing).
 
According to the Property Owners and Managers Association, most inner city property owners haven’t increased rentals this year, because of high vacancies and increased municipal charges.
 
For instance, over the past year…
 
Water charges rose 9.7%
Sewerage charges grew 27%
Electricity charges rocketed 26%
Council charges have grown 9%
 
This is all while, household income has only increased 7% and average rental rates, increased 2.3%.
 
This essentially means, the rise in municipal rates has outstripped the company’s rental fees increases. And the company expects this to continue as South Africa’s economy shows no signs of growth.
 
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Consequently, the knock-on effects have hurt Indlu profits and dividend growth 
 
You just need to take a look at the company’s 2019 results to see this…
 
Revenue fell 2.5%; operating profit dropped 10.5% and headline earnings per share crashed over 62%!
 
More importantly, the group trimmed its dividend by 20%. 
 
And you can expect this to continue for at least another year. The company, expects its 2020 dividend to fall by between 6% and 9%.
 
In fact, dividends may only grow again in 2021. 
 
In short, it’s going to be a tough next two years for Indluplace. But for today, it’s wise investors ignore the company’s “attractive” dividend yield of +18%, and rather put their money into solid dividend paying companies that will steadily build your wealth over the long term.
 
See you next week.
Joshua Benton,
The South African Investor
 
P.S. To get my newest report on the five best dividend paying stocks right now, go here.


The next “High-yield investment trap” you must avoid now
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