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Usually, high dividend yields are a good thing. After all, the greater the dividend yield, the more income you are paid for your investment. Income investing, and particular dividend reinvestment, allows investors to steadily grow their wealth over the long run.

But income investors need to make sure they do not fall into a dividend ‘trap’, meaning purchasing a stock solely due to its high yield, only to see the company cut or eliminate the dividend payout.

The following 3 risky dividend stocks have dangerously high yields and weak fundamentals, meaning they could cut their dividends in the near future.

Cross Timbers Royalty Trust (CRT)

Cross Timbers Royalty Trust (CRT) is an oil and gas trust, set up in 1991 by XTO Energy. It is a combination trust: unit holders have a 90% net profit interest in producing properties in Texas, Oklahoma, and New Mexico; and a 75% net profit interest in working interest properties in Texas and Oklahoma.

A working interest property is one where the unit holder shares in production expense and development cost. This means that should development costs exceed profits no further profits will be paid from these properties until excess costs have been recovered.

In 2024, oil comprised 72% of total revenues while gas comprised 28% of total revenues. The trust’s assets are static in that no further properties can be added. The trust has no operations but is merely a pass-through vehicle for the royalties. CRT had royalty income of $12.3 million in 2023 and $6.6 million in 2024.

In mid-November, CRT reported (11/13/25) results for the third quarter of fiscal 2025. Oil and gas volumes declined 20% and 47%, respectively, over the prior year’s quarter. The average realized price of oil decreased -20%. As a result, distributable cash flow (DCF) per unit plunged -68%. Unfortunately, distributions have plunged amid low oil prices in the last seven months, as OPEC has begun unwinding its production cuts.

Orchid Island Capital (ORC)

Orchid Island Capital is a mortgage REIT that is externally managed by Bimini Advisors LLC and focuses on investing in residential mortgage-backed securities (RMBS), including pass-through and structured agency RMBSs. These financial instruments generate cash flow based on residential loans such as mortgages, subprime, and home-equity loans.

On October 23, 2025, Orchid Island Capital, Inc. reported estimated net income of $0.53 per common share for Q3 2025, with book value per share estimated at $7.33 as of September 30, 2025.

Orchid Island has experienced extreme earnings volatility over the past several years, with a net loss in 2013 and 2018, along with multiple years in which the trust barely generated a profit. As a result, we are using book value per share as an alternate metric to earnings-per-share. The growth outlook for mortgage REITs is challenged.

Orchid Island is not a safe stock. The dividend payout ratio is well above 100% due to low or non-existent earnings. Mortgage REITs are exposed to a number of risks, including interest rate risk, as well as credit risk. These risks pertain to the direction of interest rates, as well as the ability of borrowers to repay the mortgage loans. Moreover, mortgage REITs do not possess many competitive advantages.

Gladstone Investment Corp. (GAIN)

Gladstone Investment is a business development company (BDC) that focuses on US-based small- and medium-sized companies. Industries which Gladstone Investment targets include aerospace & defense, oil & gas, machinery, electronics, and media & communications. The company was founded in 2005 and is headquartered in McLean, VA.

Gladstone Investment reported its second quarter (Q2 2025 ended September 30) earnings results in November. The company generated total investment income - Gladstone Investment’s revenue equivalent - of $25.3 million during the quarter, which represents a substantial 12% increase compared to the previous year’s quarter. Gladstone Investment’s earnings-per-share totaled $0.24 during the fiscal second quarter, which was down from the previous quarter’s level.

Gladstone Investment Corp. has seen its net investment income-per-share decline in 2023 and 2024, although the decline was pretty small last year. For the current year, analysts are predicting a more pronounced decline in Gladstone Investment’s earnings-per-share. In some years, Gladstone Investment has suffered from above average credit losses, which is why we believe that there is a significant likelihood of earnings being somewhat lumpy in the future.

Gladstone Investment’s dividend payout ratio, relative to its net investment income, has been close to or above 100% throughout parts of the last decade. While the company did not cut its dividend in recent years, it has not offered dividend increases for a couple of years, either. Due to the elevated payout ratio, the dividend cannot be described as low-risk.

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