Imagine that the proverbial Martian with an economics degree observed the USA today with unemployment at 5.5% and falling, GDP growing by 2.75%, and house prices and home building both recovering strongly. However, interest rates are 0.1%, 1.5%, and 2.1% for 1 year, 5 years, and 10 years.
This well-informed Martian would surely ask, how can this be? We too ask the same question. As a result of our inability to rationalise this data, we are generally wary of so called yield plays. We are even more concerned with what we call manufactured yield stocks. These are stocks generating a high yield not through maintainable earnings, but through underspending on capex and draw down of debt.
We believe the market will start to question the sustainability of the distributions some of these companies pay. Watch the video for further explanation from Jeremy and three stocks he says appear to be trading in the ‘Yield Mirage’:
Livewire Exclusive via Jeremy Bendeich, Avoca Investment Management.
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