3 Dividend Stocks With Yields That Are Too High
Usually, high dividend yields are a good thing. After all, the greater the dividend yield, the more income you are paid for your investment. Income investing, and particular dividend reinvestment, allows investors to steadily grow their wealth over the long run.
High dividend stocks are naturally appealing on the surface, due to their high dividend yields.
But income investors need to make sure they do not fall into a dividend ‘trap’, meaning purchasing a stock solely due to its high yield, only to see the company cut or eliminate the dividend payout.
These 3 stocks have risky dividends that are too high, and are potential candidates for dividend cuts.
Cross Timbers Royalty Trust (CRT)
Cross Timbers Royalty Trust (CRT) is an oil and gas trust, set up in 1991 by XTO Energy. It is a combination trust: unit holders have a 90% net profit interest in producing properties in Texas, Oklahoma, and New Mexico; and a 75% net profit interest in working interest properties in Texas and Oklahoma.
A working interest property is one where the unit holder shares in production expense and development cost. This means that should development costs exceed profits no further profits will be paid from these properties until excess costs have been recovered.
In 2024, oil comprised 72% of total revenues while gas comprised 28% of total revenues. The trust’s assets are static in that no further properties can be added.
The trust has no operations but is merely a pass-through vehicle for the royalties. CRT had royalty income of $12.3 million in 2023 and $6.6 million in 2024.
In mid-November, CRT reported (11/13/25) results for the third quarter of fiscal 2025. Oil and gas volumes declined 20% and 47%, respectively, over the prior year’s quarter. The average realized price of oil decreased -20%.
As a result, distributable cash flow (DCF) per unit plunged -68%. Unfortunately, distributions have plunged amid low oil prices in the last seven months, as OPEC has begun unwinding its production cuts.
Stellus Capital (SCM)
Stellus Capital Management is a business development company, or BDC, that bills itself as a flexible source of capital for the middle market. The company provides capital solutions to companies with $5 million to $50 million of EBITDA and does so with a variety of instruments, the majority of which are debt.
Stellus provides first lien, second lien, mezzanine, convertible debt, and equity investments to a diverse group of customers, generally at high yields, in the US and Canada.
Stellus posted third quarter earnings on November 12th, 2025, and results were weak once again. Net investment income was $9.1 million, down from $10.3 million a year ago. On a per-share basis, NII fell from 39 cents to 32 cents.
Core net investment income, which is an adjusted form of profit, fell from $10.6 million to $9.7 million, or from 39 cents per share to 32 cents. Total investment income, which is akin to revenue, was $26.28 million, down slightly from $26.5 million a year ago.
Net asset value was down 16 cents per share, with eight cents of that attributable to dividend payments exceeding earnings, and eight cents to net unrealized losses from two debt investments.
Ellington Credit Co. (EARN)
Ellington Credit Co. acquires, invests in, and manages residential mortgage and real estate related assets. Ellington focuses primarily on residential mortgage-backed securities, specifically those backed by a U.S. Government agency or U.S. government–sponsored enterprise.
Agency MBS are created and backed by government agencies or enterprises, while non-agency MBS are not guaranteed by the government.
On August 19th, 2025, Ellington Credit reported its first fiscal quarter results for the period ending June 30, 2025. The company generated net income of $10.2 million, or $0.27 per share.
Ellington achieved adjusted net investment income of $6.6 million in the quarter, or $0.18 per share. At quarter end, Ellington had $36.6 million in cash and cash equivalents.
EARN’s dividend is far from trustworthy given the corporation has a trail of cuts in the rearview. In five of the last ten years, the company’s payout ratio was near or above 100%. Currently, even after another dividend cut, the dividend appears to be under heavy pressure.
While the company’s details were not public in the 2008 real estate crash, a recession of that magnitude would most definitely affect EARN. Its focus on government-sponsored MBS provide some safety, but a prolonged recession in the future would likely affect EARN’s bottom line, and result in further dividend reductions.