Watch out for Dividend Yields

Dividend yield can sometimes be too good to be true. Case in point, CBL & Associates (CBL), which pays out 12.7%, but funds all of it on debt, not profit production. CBL redevelops retail centers in growing markets. The company develops, acquires, leases, manages, and operates regional shopping malls, open-air and mixed-use centers, community centers and office properties and outlet centers. It’s a profitable business and management has done a good job navigating the new retail paradigm. However, this company is trying to beat a dead horse it seems.

Is retail dead? No. It’s just going to ecommerce instead of store shopping. This has caused roughly 400,000 new jobs to be created in one segment while 140,000 were lost in another. What may be likely is that all the old retail stores will turn into fulfillment centers. The question is whether or not Amazon will own them, or the retail stores themselves will finally take control.

CBL earned about $1 billion net on roughly $11 billion in sales over the last decade. However, it also issued over 110 million more shares (+150% rise) and paid out more than it earned as dividends. More importantly, it’s CapEx spending has remained well in excess of the company’s net income. A major red flag for any investor.

Right now, the stock has pretty massive short interest (31%) so it could go higher if the shorts decide to cover. Of course, that could happen after it drops below $5/share too. If that were to happen, the 12-13% you earn wouldn’t mean squat.

Bottom Line: Stocks with high dividend yields are not always worth owning.

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