Over the last two of month’s I’ve outlined a series of ten questions which I use to help me avoid yield traps. This month I’m going to interrogate a company using those questions so that you can see them being used in a practical setting. The company in question is KCOM Group (LON:KCOM), a FTSE 250-listed telecoms and IT services provider. KCOM’s yield is currently almost 7%, which puts it squarely in yield trap territory.
The company was created at the start of the 20th century as the council-run Hull Telephone Department, providing telephone services to the people of Hull and East Yorkshire. In more recent years (now as a publically listed company), KCOM has been trying hard to move away from its fixed-line business towards the world of internet services, but the results have been mixed. So are investors right to be wary?
Before I dive into the yield trap questions, I want to run through KCOM’s financial performance and share price valuation. This should explain why I think KCOM is a company worth looking at in some detail.