CBL Stock: Should Investors Consider This 14.4% Yield Safe?
November 8, 2017
Should Investors Consider This High-Yield Stock?
In an era when a four-percent payout can be considered impressive, finding stocks with double-digit dividend yields often involves looking into the out-of-favor sectors of the market. CBL & Associates Properties, Inc. (NYSE:CBL) is a good example.
There’s no other way to put it: CBL stock has been doing terrible. Due to a disappointing earnings report, the stock tumbled nearly 30% in the past week. Year-to-date, CBL stock has plunged more than 50%. Ouch!
However, because a company’s dividend yield moves inversely to its share price, the latest downturn in CBL stock could represent an opportunity for yield-seeking investors. Trading at $5.56 apiece, CBL & Associates Properties stock offers a staggering annual dividend yield of 14.4%.
Of course, if yield is the only criterion, investors would be rushing toward the ultra-high yielders. But they are not. And that’s because the highest-yielding names in the stock market are not really known for their dividend safety.
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So, should income investors consider this 14.4% yielder? Let’s take a look.
CBL & Associates Properties is a real estate investment trust (REIT) headquartered in Chattanooga, Tennessee. The company’s portfolio consist of 119 properties totaling 74.4 million square feet. These properties include enclosed, outlet, and open-air retail centers located across 27 states.
The real estate sector is one of the best places to find generous dividend payers. Because tenants pay rent on a regular basis, real estate companies can pay a steady dividend. Furthermore, when a company chooses to be structured as a REIT, it is required by law to distribute at least 90% of its profits to shareholders every year in the form of dividends.
Since CBL & Associates Properties is a REIT, it should pay steady dividends, right? Well, not exactly.
Last week, in the company’s earnings report, CBL & Associates Properties announced that it would now be paying quarterly dividends of $0.20 per share. This represented a 24.5% cut from its previous quarterly payout of $0.265 per share. (Source: “CBL Properties Reports Results for Third Quarter 2017,” CBL & Associates Properties, Inc, November 2, 2017.)
The dividend cut was likely due to deteriorating financials. In the third quarter of 2017, CBL & Associates Properties generated $224.7 million in revenue, down 10.7% year-over-year. Adjusted funds from operations (FFO), a critical measure of a REIT’s performance, came in at $0.50 per share, representing a 12.3% decline from the year-ago period.
According to CBL’s chief executive officer, Stephen Lebovitz, the lackluster results in the third quarter were due to bankruptcies, store closures, and rent concessions. (Source: Ibid.)
Still, with $0.50 in adjusted FFO, the company should have no problem covering the new quarterly payout that it just declared.
Final Thoughts on CBL Stock
Usually, when a REIT generates much more FFO than its dividends, investors can consider its payout to be safe. But, in the case of CBL & Associates Properties, there’s a concern that the declining retail industry may result in more store closures. And that could lead to further deterioration in the company’s business.
Bottom line: CBL stock’s 14.4% yield looks very attractive, but I would rather be on the sidelines until the worst is over for its retailer tenants.
