Dividend stocks are commonly thought to be good investments because only a profitable company can afford to pay dividends. Right? Maybe not. There are times when a too high Dividend should be a warning sign. When is a Stock dividend too high? CNBC writes that five stocks with the hottest dividends could soon burn investors.

The stocks that generate the most income in the S&P 500 could pose a risk to investors as the Federal Reserve carries out its plan to raise interest rates, according to some strategists.

The five highest-yielding stocks in the S&P 500 include telecommunications company CenturyLink, digital data storage firm Seagate, Macy’s, information management service company Iron Mountain and real estate investment trust Kimco Realty. They carry dividend yields of 9 percent, 6.8 percent, 6.6 percent, 6.5 percent and 6 percent, respectively.
Names in the telecommunications, utilities and real estate sectors are particularly vulnerable to swings in interest rates and typically move inversely to rates.

The fact that a company offers a high dividend yield may point to problems for the respective stock, said Miller Tabak equity strategist Matt Maley.

The first issue with high dividends is that they buoy up the stock price. But when interest rates go up the stock price falls similar to what happens to bond value when rates go up. The second issue is with failing companies. A company is solid and pays dividends for years. It has money in the bank but sales are falling and its business plan is outdated. As the stock falls in price the company keeps its dividend the same in order to make the stock more attractive. When a stock dividend is to high may be when it is not a function of company success but dilution of share value.

Is a High Dividend Always Bad?

Not all good stocks are growth stocks. The Motley Fool highlights pipeline operator Kinder Morgan in an article about embarrassingly cheap dividend stocks.

Some higher-yielding dividend stocks are cheap for a reason: Investors don’t believe that the company can sustain its payout due to deteriorating financials. That said, other times the market gets a stock completely wrong, which seems to be the case with Kinder Morgan (NYSE:KMI), Medical Properties Trust (NYSE:MPW), and Summit Midstream Partners (NYSE:SMLP). All three companies trade at embarrassingly cheap valuations these days, which means investors can pick up their compelling yields at bargain-basement prices.

At a time when the FANG tech stocks keep growing and growing it can be easy to overlook non growing cash cows like pipeline operator Kinder Morgan. The company will generate four and a half billion dollars of cash to distribute to shareholders this year. As the company is solid and its low share price has to do with a market that values year upon year growth instead of reliable cash flow. In the case of Kinder Morgan its dividend is not too high. Analysis of fundamentals is essential in deciding if a stock dividend is too high.