Dividend stocks can make for attractive investments since they can pad your overall returns. However, when the dividend yield gets too high, more than 6%, it could signal that a reduction in the payouts could be around the corner.
Gamehost Inc (TSX:GH) currently pays its shareholders a dividend of $0.0575 every month which yields 8.1% per year.
That's a very high payout and the stock falling 20% over the past two years is a big part of the reason that the yield has gotten as high as it is.
When the stock price falls, investors earn the same dividend and have to pay less to get it. But a falling share price could also be a sign of trouble and that the business may not be performing well, which could jeopardize its payouts.
Gamehost has recorded a profit in each of the past four quarters, and its net income of $15.5 million over the trailing 12 months has been more than 22% of its revenue of $68.3 million during that time.
If we turn to the cash flow statement, we also see that the company has brought in $18.3 million in free cash flow, which is enough to cover the $16.8 million that the company paid out in dividends.
For now, it looks like the dividend is still in good shape but investors should keep a close eye on Gamehost as the company's business is dependent on an Alberta economy that's still very fragile and struggling from a downturn that's been going on for several years.
