Why we don’t buy stocks purely on yield

Glennon Capital

ASX:GC1, ASX:CMI

Cash rates are at all time lows and predicted to move lower, while the yield on Australian 10 year government bonds hit an all time low of 2.2% this month. Australian savers, both within the superannuation system and outside it, are now faced with the tough task of building their savings nest eggs under much more difficult conditions. The result has been a search for income in stocks. Yield has been king. But in searching for fully franked yield in equities, investors can ignore important risks. Yield needs to be “real” and sustainable. Real yield comes from free cash flow. Free cash flow is the cash a business generates after accounting for capital expenditures required for the business to continue operating. Once a business generates free cash flow the board can choose to pay down debt, reinvest the money to fund future growth projects or acquisitions, buy back shares, or pay the cash to shareholders as a dividend. (VIEW LINK)


1 topic

Glennon Capital
Fund Manager
ASX:GC1, ASX:CMI

Glennon Capital was founded in 2008 by Michael Glennon. Previously, Michael worked with some of the best institutional small company fund managers in Australia. In 2007, he received the IMCA Money Management Fund Manager of the Year (Small Cap)...

Expertise

No areas of expertise

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.