Is Barnes & Noble’s 10.8% Yield Too Good To Be True?

Barnes & Noble Inc (NYSE:BKS) is a dividend stock that’s offering a sky-high yield of just under 11% right now. The big question is whether it’s due for a cut and whether investors can count on dividend payments remaining intact. Normally, once you see a yield climb over 6% that’s already going to send warning signs for some investors, so an 11% yield will have more than a few skeptics.

A big reason the yield is so high is that year to date, Barnes & Noble has seen its stock plummet by 24%. If the stock price was closer to around the $7 that it started the year at, the yield would be closer to 8.5%. Although that’s still high, it looks a lot more realistic.

Another problem is that current dividend payments of 60 cents per share per year are well in excess of the company’s earnings per share of just two cents in the trailing twelve months. And in three of the past five years, Barnes & Noble has finished in the red. The company has had negative free cash flow in the past year as well.

Overall, there’s not a lot of reason to be excited about this yield. It’s certainly high, but it’s not a quality payout that investors can rely on. With sales not showing any growth in the company’s most recent quarter and a tight bottom line, sooner or later Barnes & Noble might have to look at cutting or eliminating those dividend payments to help improve it’s long-term prospects.