With the rate cut last week, the income dilemma for yield-reliant investors only got worse. Investors barely receive 2% for cash deposits these days, and with little prospect of an end to the low-interest-rate environment in sight – in fact, further cuts from the Reserve Bank of Australia (RBA), the simple fact is that investors continue to look to the share market for yield.
As we have mentioned many times in the Switzer Report, there are inherent problems with this strategy: primarily, that the dividend payments that generate the yield from a stock cannot be considered certain. At any reporting period, the dividend can fall (or even, in drastic circumstances, be cut altogether.) Bank investors are dealing with this problem
The other main risk is that while you are holding the shares for yield, the share price can fall – just ask Telstra’s legion of retail shareholders.