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Income investors generally want to avoid dividend cuts whenever possible. Not only does a dividend cut result in a loss of income, but a company’s share price typically declines after announcing a dividend reduction or suspension.

One way to evaluate a company's dividend is through the payout ratio. The dividend payout ratio simply divides a stock's annual dividend payout by its annual earnings-per-share. A dividend payout ratio over 100% indicates a company is paying out more in dividends than it produces in underlying earnings, which means a dividend reduction is likely in the future.

The following 3 risky high dividend stocks have payout ratios over 100%, suggesting a dividend cut is possible at some point. Therefore, income investors should sell these 3 stocks.

PermRock Royalty Trust (PRT)

PermRock Royalty Trust is a trust formed in late 2017 by Boaz Energy, a company that is focused on the acquisition, development and operation of oil and natural gas properties in the Permian Basin. The Trust benefits from the unique characteristics of the Permian Basin, which is the most prolific oil-producing area in the U.S.

On May 14th, 2025, PermRock Royalty reported first quarter 2025 results for the period ending March 31st, 2025. Net profits income received by the trust was $1.71 million, compared to $1.30 million in the prior year quarter. The average realized sale price of oil declined by 5.1% year-over-year, while natural gas edged up by 1.6%.

Distributable income for the trust came to $1.47 million, up 31% from $1.12 million in the prior year period and distributable income per unit of $0.12 was higher by three cents from $0.09 in the prior year.

PermRock previously guided for production growth, however, oil and natural gas production volumes have declined every year since 2019. Still, the average realized sales price was higher for both oil and natural gas in 2021 and 2022, but declined in 2023 and 2024. T2S expects to drill one injector well and one producer well in Crane County, Texas in 2025. Given the mature nature of the trust’s assets, future production and reserve estimates are somewhat predictable.

Moreover, management believes that it can grow production rates via expanded water-flooding operations and drilling of additional wells. Nevertheless, the results of the trust are extremely sensitive to the price of oil and hence it is impossible to predict future earnings with any degree of accuracy. As with other O&G royalty trusts, this one is highly dependent on commodity prices. PermRock Royalty Trust operates in a highly cyclical industry, which renders its results and distributions very volatile from year to year.

Timbercreek Financial Corp. (TBCRF)

Timbercreek Financial is a Canadian non-bank lender specializing in shorter-duration, structured financing solutions for commercial real estate investors.

The company provides primarily first-mortgage loans for income-producing properties, including multi-residential, retail, industrial, and office assets. Its loans are typically used for acquisition, redevelopment, or transitional financing, and are often repaid through term financing or asset sales.

Timbercreek’s portfolio is 100% commercial real estate-focused and highly urban, with about 92% of capital invested in Ontario, British Columbia, Quebec, and Alberta.

On July 30th, 2025, Timbercreek Financial reported its Q2 results. Distributable income for the quarter was $10.7 million, or $0.13 per share, compared to $11.9 million, or $0.15 per share, in Q2 2024.

This reflected a slightly lower average portfolio yield and a modest increase in expected credit loss, offset by higher average portfolio balances.

Net investment income was $18.4 million, down from $19.3 million in Q2 2024. Net income fell to $9.0 million, or $0.11 per share, from $11.2 million, or $0.14 per share, mainly due to higher expected credit loss provisions despite a larger mortgage portfolio and reduced financing costs.

While there have been no principal losses to date, the increase in Stage 2 and 3 loans during tougher market periods, like 2023, highlights the portfolio’s sensitivity to shifts in credit conditions. Timbercreek’s edge lies more in speed and flexibility, as it serves borrowers traditional lenders often can’t, than in risk aversion. The floating-rate, short-duration loan structure does add adaptability, but the business overall is more cyclical and opportunity-driven than it is defensive.

Ellington Credit Co. (EARN)

Ellington Credit Co. acquires, invests in, and manages residential mortgage and real estate related assets. Ellington focuses primarily on residential mortgage-backed securities, specifically those backed by a U.S. Government agency or U.S. government–sponsored enterprise.

Agency MBS are created and backed by government agencies or enterprises, while non-agency MBS are not guaranteed by the government.

On August 19th, 2025, Ellington Credit reported its first fiscal quarter results for the period ending June 30, 2025. The company generated net income of $10.2 million, or $0.27 per share.

Ellington achieved adjusted net investment income of $6.6 million in the quarter, or $0.18 per share. At quarter end, Ellington had $36.6 million in cash and cash equivalents.

EARN’s dividend is far from trustworthy given the corporation has a trail of cuts in the rearview. In five of the last ten years, the company’s payout ratio was near or above 100%. Currently, even after another dividend cut, the dividend appears to be under heavy pressure.

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