There are some UK shares with attention-grabbing dividend yields on provide in the intervening time. However on the subject of investing, issues aren’t at all times what they appear.

I’m firmly of the view that dividend shares will be nice passive revenue investments. Discovering the fitting ones nonetheless, could be a tough enterprise.

Excessive yields

There are a selection of shares which have dividend yields that appear too good to be true. And in some instances, that’s as a result of they’re. Regional REIT (LSE:RGL) is one instance. Based on some sources, the actual property funding belief (REIT) is about to return over 16% of its share price to traders within the subsequent 12 months. 

This nonetheless, is a mistake. The agency’s truly trying to distribute round 7.8p per share and with a present share price of £1.16, that means a 6.7% dividend yield.

A 6.7% return isn’t dangerous, particularly with Regional REIT having strengthened its stability sheet not too long ago. But it surely’s removed from the yield marketed in some locations, so what’s occurring right here? 

I believe the reply has to do with the corporate going by means of a reverse inventory cut up final yr. In doing so, it changed 10 (previous) shares with one (new) one. 

My suspicion is that that is inflicting among the calculations in sure locations to go improper. However that is precisely the form of issues traders must find out about. 

Please notice that tax therapy is dependent upon the person circumstances of every shopper and could also be topic to alter in future. The content material on this article is offered for info functions solely. It’s not meant to be, neither does it represent, any type of tax recommendation.

Particular dividends

In different instances, returns will be a lot greater than they appear – B&M European Worth Retail‘s (LSE:BME) an excellent instance. A fast look suggests the inventory comes with a 5% dividend yield.

That isn’t dangerous by any means. And in 2024, B&M returned 14.9p per share in abnormal dividends, which is certainly 5% of the present inventory price of £2.94.

This nonetheless, isn’t the total story. The agency additionally distributed a particular dividend of 15p per share, which takes the entire money distribution to 29.9p – 10% yield at right this moment’s costs.

No dividends are assured, particularly particular ones. Traders must also notice that declining like-for-like gross sales meant B&M’s large February distribution was decrease than in earlier years.

The corporate nonetheless, does have an excellent monitor report on the subject of its particular dividend. And leaving this out of the yield calculation considerably understates the general return. That is why traders aiming for passive revenue must look intently at shares. Generally a dividend can truly be extra spectacular than it seems to be. 

Appearances will be misleading 

Earnings traders typically know that there’s extra to a inventory than its dividend. Over the long run, crucial factor is the underlying enterprise.

Generally although, even the dividend yield isn’t what it appears. A better look can present traders they’re set to obtain a lot lower than they may have thought – or way more.

A 16% dividend yield could be a reasonably compelling motive for traders to assume significantly about shopping for shares in Regional REIT. However I’m not satisfied that is the case at 6.7%.

With B&M, nonetheless, the scenario is the other approach round. The very fact the inventory seems to be set to distribute 10% of its market-cap every year, moderately than 5%, means I believe it’s price contemplating.