AFR: How to chase higher income without blowing up capital

As Mayfair 101 investors can attest, there is no point chasing higher rates of income if it is not sustainable or results in capital destruction.

Here are four key qualities that investors can look for when researching a company, infrastructure or property trust in order to assess the sustainability of income.

Dividend payout ratio: Hugh Dive, portfolio manager at Atlas Funds Management, says that generally anything above 80 per cent suggests the current level of the dividend may not survive the inevitable variability in profits from the economic cycle. Though this can be industry-specific, a regulated electricity utility such as Spark Infrastructure can handle a higher payout ratio due to greater certainty of earnings than a mining company such as Alumina. Spark Infrastructure offers investors an income yield of around 6.3 per cent based on the current share price.

How to chase higher income without blowing up capital

SCA Property, a listed property trust with exposure to non-discretionary retail via 91 suburban shopping centres anchored by long leases to major supermarkets with low gearing, is an excellent example of an investment displaying these characteristics, says Dive.