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3 Dividend Stocks With High Payouts That You Should Avoid!

High-yielding stocks are hard to come by, especially ones that are sustainable. It?s important, with stocks that have high payouts, to consider the company?s cash flow and if it is strong enough to afford the dividend payments, because if there isn?t enough cash coming in, that might mean that a dividend cut is around the corner.

I?m going to have a look at three dividend stocks that pay more than 7% annually and assess whether or not these would be good options to add to your portfolio.

Timbercreek Financial Corp. (TSX:TF) currently pays a dividend of over 7.2% with monthly installments that can provide you with a regular stream of income. The stock was listed on the TSX just last year, so there is not a lot of history to evaluate.

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Monthly payments of $0.057 mean that the company?s annual payouts of $0.684 made up 86% of Timbercreek?s earnings per share (EPS) last year. This is a bit high, but a look at cash flow might give us a better idea of whether the company can afford its dividends or not, since, unlike earnings, it won?t include non-cash items.

Timbercreek has seen free cash flow increase for three straight years, and dividend payments have averaged over 95% of the company?s available cash. This is a bit concerning, and unless Timbercreek can continue to grow its cash, it might have to cut its dividend. In the trailing 12 months, Timbercreek?s free cash has risen, but only enough to bring its payout ratio down to less than 90%. There is some risk here, and I wouldn?t take a chance on the non-bank lender until it is able to create a bit more breathing room in its dividend payments.

American Hotel Income Properties REIT LP (TSX:HOT.UN) is an even higher-yielding stock with monthly dividends of US$0.054 providing a very high 8.5% payout to investors. After a poor quarter, where the company posted a net loss of $5 million, American Hotel?s EPS dropped to $0.12 and sent its payout ratio to over 500%. A look at the company?s cash flow does not make things any better, as American Hotel has had negative free cash flow in each of the last three years.

Although the company has been growing sales with its latest quarter showing a 56% increase in revenue, profit margins averaging just 4% the past three years means that American Hotel will have to see a lot more growth to make its dividend sustainable.

Ensign Energy Services Inc, (TSX:ESI) has seen its share price drop 28% in 2017, which has pushed the stock?s yield to over 7.1%. With a negative EPS the past two years and losses in the last four quarters, an EPS-based payout ratio is not necessary. Using free cash is slightly better, since the company has had $8 million in available cash the past 12 months, but that is down significantly from $122 million last year, and even less than the $244 million it posted two years ago.

Net losses, falling free cash, and operations in a struggling oil and gas industry make Ensign a stock that might be primed for a dividend cut. Dividend investors looking at oil and gas should consider Enbridge Inc. (TSX:ENB)(NYSE:ENB) instead, which offers a much safer payout.

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Fool contributor David Jagielski has no position in any stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.

1 Massive Dividend Stock to Buy Today (7.8% Yield!) - The Dividend Giveaway

The Motley Fool Canada's top dividend expert and lead adviser of Dividend Investor Canada, Bryan White, recently released a premium "buy report" on a dividend giant he thinks everyone should own. Not only that - but he's created a must-have, exclusive report that outlines all the alarming traits of dividend stocks that are about to blow up - and how you can avoid them.

For this limited time only, we're not only taking 57% off Dividend Investor Canada, but we're offering you special access to two brand-new reports, free of charge upon signing up. They will outline everything you need to know so you steer clear of dividend burn-outs AND take advantage of the dividend giants in the Canadian market.

While this offer is still available, you can find out how to get a copy of these brand-new reports by simply clicking here.

Fool contributor David Jagielski has no position in any stocks mentioned. The Motley Fool owns shares of Enbridge. Enbridge is a recommendation of Stock Advisor Canada.