Danger Lurks for These 2 High-Yield Dividend Stocks

I've written before that dividend investing isn't all about yield. In fact, when dividends seem too good to be true, that's often the case, a concept known as a dividend yield trap.

With that in mind, here are two potential yield traps that I'd suggest investors stay away from, at least until these companies figure out how to sustainably increase revenue and profitability.

The wrong kind of malls to own in the new retail environment

CBL & Associates is a real estate investment trust, or REIT, that owns shopping malls in midsize markets. And at first glance, its 13.5% dividend may appear to be sustainable. After all, the $0.80 annual payout is well-covered by the company's projected funds from operations of $1.75 per share in 2018 and $1.70 per share in 2019. However, it's beyond that time that has me worried.

Over 60% of CBL & Associates' properties are anchored by either a Sears or a JCPenney, but their chains are closing stores at a rapid pace and are struggling to survive. And unlike Class A mall operators like Simon Property Group, it isn't practical for CBL to redevelop those spaces into value-adding destinations.

CBL's malls are of the Class B and C varieties. If you're not familiar with real estate property classifications, Class B properties generally have some deferred maintenance issues and/or have lower-income tenants, while Class C properties are typically located in less-desirable locations, are over 20 years old, and are in need of considerable renovation or repositioning.

In a nutshell, CBL's properties aren't the best malls, nor is the company in a financial position to turn them into the best malls. While it's possible that the company's repositioning efforts may work, the future of this class of brick-and-mortar retail is far too uncertain.

This company doesn't have a realistic path to raising revenue

To be clear, I love going to physical bookstores, especially Barnes & Noble. However, I wouldn't invest in the company in the current retail environment.

Barnes & Noble has two retail trends working against it. First, I know it's not exactly news, but the world is constantly becoming more digital, and this is especially true in books, music, and movies -- Barnes & Noble's core product types.

Second, Amazon.com is eroding the e-commerce market share of the company (remember, Amazon began its life as a bookstore). While Amazon's sales have soared, as my colleague Joe Tenebruso wrote earlier in 2018, Barnes & Noble's online sales fell by 4.5% during the crucial holiday season. In the e-book category, Amazon's Kindle e-reader continues to dominate while Barnes & Noble's Nook is an also-ran.

So, not only does Barnes & Noble sell products with declining sales, but it also faces tremendous and possibly insurmountable competition in the one area of retail that's actually working.

From a numbers standpoint, things look pretty scary. Barnes & Noble pays an annual dividend of $0.60; based on analyst estimates, this translates to payout ratios of 102% and 95% in the next two fiscal years. To be fair, earnings per share can sometimes be misleading, but Barnes & Noble's cash flow hasn't been sufficient to cover the current dividend rate since 2014. Considering that the company has had six straight years of declining revenue, I wouldn't bet on these metrics to get much better anytime soon.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Matthew Frankel has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool has a disclosure policy.