With so many top-tier dividend shares to select from on the TSX, I focus most of my time and a focus on discovering the best possible decide for traders. That stated, there’s additionally the inverse, which might be true: with so many high high-yielding choices to select from, some could not be capable to proceed to pay out their excessive dividend yields over time.
One firm I’m rising more and more bearish on on this regard is Yellow Pages (TSX:Y).
Right here’s why I feel Yellow Pages could possibly be a high dividend inventory for traders to keep away from proper now.
Supply: Getty Photographs
Income decline spells hassle
I feel the important thing catalyst that determines a whole lot of an organization’s upside potential has to do with its underlying fundamentals and relative progress charges. Now, whereas Yellow Pages inventory has surged of late (see chart above), that’s on account of extra exogenous components than basic ones.
By way of income progress from digital advertising and marketing and people fading print directories, issues are pointing within the improper course. Certainly, digital revenues, which make up 80% of the corporate’s gross sales, dropped 6.8% in Q1 2025 alone, whereas print cratered 10.5%. Over the previous 5 years, earnings per share have plunged 23% yearly, with no reversal in sight.
Now, the corporate’s administration workforce is speaking sport about “bending the income curve.” Nevertheless, buyer losses proceed to persist, and legacy print is a dying relic. In a world of Google advertisements and AI-driven advertising and marketing, Yellow Pages is swimming upstream in opposition to giants. Any whiff of financial slowdown might speed up the bleed, turning that yield into idiot’s gold.
Dividend sustainability could possibly be referred to as into query
The opposite key driver of uncertainty shifting ahead is how Yellow Pages plans to fund its spectacular dividend yield above 7%. By way of the inventory’s payout ratio, there’s lots left to be desired in my books.
Final yr, Yellow Pages shelled out 102% of earnings as dividends. Any quantity over 100% is a screaming pink flag for a scarcity of long-term dividend protection. Now, free money flows might enhance (and the present distribution takes up round 50% of the corporate’s general working money move). But when margins deteriorate additional over time, this inventory is at severe danger of a dividend lower.
For these causes, and expectations that earnings per share might drop one other 23% within the yr to come back, this can be a firm with too many headwinds to be thought-about a viable funding for my part.
There are many different mid-single-digit yielding shares out there to select from with far more sturdy steadiness sheets. Thus, Yellow Pages appears to be like like a textbook dividend lure, if I’ve ever seen one, proper now.