Something strange happened in the instant recession as the novel coronavirus turned into the COVID-19 pandemic. Many “safe and defensive” stocks faced the rare instance of not being so safe or defensive. Some dividends that have been deemed safe and comfortable and with room to grow suddenly have yields high enough now that they should be raising eyebrows.

If investors have learned one thing over time, it is that it can be very painful when a company announces that it is cutting its dividend. It’s far worse when a company has to suspend its dividend, because many funds that own income stocks simply can no longer own it.

A safe dividend is backed up by years of continued earnings power and a company’s ability to manage its balance sheet and cash flows. Many dividends have reached beyond normal levels of justification, either because their stock prices dropped and the dividend remains or because their earnings power is less certain in the pandemic recession that has hit many defensive stocks.

24/7 Wall St. has screened out 10 stocks that have dividends at levels that we cannot consider “safe.” Some of these companies have defended their dividends already, and some have vowed to do almost whatever it takes not to cut or suspend their dividends. That does not mean investors should believe there are any laws or assurances that those dividends cannot be cut or suspended.

One driving force behind very high dividends is the longstanding race for companies to increase their dividends, spend billions and billions on stock buybacks and load up on low interest rate debt. When a recession hits, that creates a difficult climate, especially when the rate of change in businesses occurs in less than a month.

It is quite common that bad things happen to even the best companies in recessions. By this point, with the combined impact of the past two recessions being worse than all recessions since the Great Depression combined, investors have seen plenty of surprises.

In the S&P 500, 390 companies screen out as dividend-payers, and of those, the median yield is close to 2.4%. The median dividend of the 30 Dow Jones industrial average stocks is closer to 3.0%, without counting the suspended dividends at Boeing and Disney. For the ultimate comparison of Treasuries, the 10-year has close to a 0.7% yield and the 30-year was last seen just under 1.5%.

We have offered a brief explanation about each dividend and why we feel they are too high. Again, these are not predictions that these 10 dividends will be cut immediately. Our view is that if investors want to own these companies, they need to keep in mind that the yields are too high to justify in the current environment.

Keep in mind that some companies will recover or keep paying those yields for far longer than skeptics might assume. The economic recovery and the expectation that the economy won’t be shut down again may support the payouts via earnings, or those yields may come down due to rising stock prices.

We did screen out the mortgage real estate investment trusts (REITs), business development companies (BDCs) and master limited partnerships (MLPs) and other partnerships because of how they make their payouts. Companies with erratic or variable dividend history also were screened out.

Here are 10 high-yield dividends that can be viewed as too high or where there could be issues down the road.

Altria’s Smoking 8.2% Yield

Altria Group Inc. (NYSE: MO) pays close to 8.2% for investors who are getting in at the current price. The company has spent years hiking its dividend, and frankly it has managed to surprise endless critics with its ability to operate and generate this level of profits year after year. The company recently said its dividend remains a top priority and that it is targeting approximately 80% of adjusted earnings per share for its payout ratio. It is surprising that the analysts are calling for earnings growth in both 2020 and 2021, but then again, the reports are that vapers (certainly the older ones) are returning to cigarettes.

As for the flip side supporting its dividend, the team at Stifel called Altria too cheap at the current levels. That report supported Altria’s pricing power, a strong balance sheet and support for its dividend.

AT&T Inc. (NYSE: T) is in a better position now that the Sprint/T-Mobile merger closed. It’s just a three-way wireless war now with Verizon as the other player. What happened over time is that AT&T acquired DirecTV and then Time Warner, and its balance sheet now has a lot more debt. With a 6.8% yield, having a share price that traded back down close to $30 after challenging $40 again last year, seems artificially high after years of hiking those dividend payments. And AT&T has a new chief executive since Randall Stevenson’s retirement announcement. The good news is that a $2.04 annualized payout is against 2019 earnings of $3.57 per share. The bad news is that Refinitiv’s consensus now sees earnings at $3.20 per share in 2020 and $3.31 per share in 2021.

For now, AT&T’s dividend is probably safe, and the company said in May that it is generating enough cash to comfortably keep its payout, even as Verizon is only paying a 4.3% dividend yield to its shareholders. If AT&T makes any more game-changing asset purchases or if the recession continues to weigh on the Time Warner unit, then that dividend liability of over $14 billion might become a heavy burden. Standard & Poor’s (rated it as BBB) even warned back in April that a deeper and longer recession’s drag on earnings and pressure on its debt/EBITDA could push management to cut or even suspend its dividend.

BP’s 10% Slick Yield

BP PLC (NYSE: BP) screens out as better than a 10% yield in both its U.S.-listed shares and its ordinary shares that trade in London. This oil giant often has gone on record that it will defend its dividend. Even the great catastrophe in the Gulf of Mexico did not wipe out that yield. Now the company cut 10,000 jobs, took a $17.5 billion write-down and just raised what was reported as $12 billion to bolster its balance sheet. This has been a surprising story over time, and current oil prices make the dividend a much harder sell in the double-digits.

An analyst at Berenberg recently suggested that a dividend cut for BP was an increasing probability to give breathing room to its balance sheet and to buffer capital spending while it targets lower carbon businesses.

CenturyLink’s 9.9% Yield Calling

CenturyLink Inc. (NYSE: CTL) has had the same $0.25 per share dividend since the start of 2019, but it used to be a $0.54 payout before that. Its share price pattern has been one of decline since 2014, but the problem in calling out the $1.00 annualized dividend is that normalized earnings are closer to $1.30 at the current time. With an $11 billion market cap, it still has over $33 billion in long-term debt. Perhaps the saving grace here is its old $34 billion acquisition of Level 3 in 2017. If CenturyLink could pay down more of its debt, this dividend would look safer. Costs and pressure on wireline operations pose longer-term problems here.

CenturyLink recently was included in a Barron’s list of 22 stocks investors shouldn’t buy. Despite some positive ratings still being seen, most analysts have been trimming their price targets on CenturyLink.

Dow’s 6.75% Yield May Not Be Fluid

Dow Inc. (NYSE: DOW) was part of a major change when its merger with DuPont and the so-called NewCo Dow was split out of that larger entity in 2019. The commodity chemicals maker posted $3.49 in earnings per share in 2019, and its $2.80 annualized dividend per share seemed fine. Then the recession hit, and this core cyclical business is seeing its earnings under pressure. Refinitiv is now projects a $1.30 EPS figure in 2020 and $2.32 EPS in 2021. Merger and break-up companies can be difficult to evaluate for a while after a deal is done, but adding in an instant recession makes it just that much harder.

Back in May of 2019, JPMorgan called out Dow’s $2.80 per share dividend as one that would act as a brake to equity price deterioration. The firm noted that dividend should be safe unless there was a prospective recession or if significantly lower oil prices came about. Well, isn’t that exactly what happened?

Exxon Mobil Corp. (NYSE: XOM) may still be the largest domestic oil and gas integrated player, but its yield is currently 7.4% because its share price is down so low (under $50, from $80 in 2019 and before). Exxon had raised its payouts for years, but with low oil prices, the $3.48 per share is currently above earnings from 2019, and well above the loss expectation and a slight recovery expectation in 2021. The company’s cash flow, balance sheet and asset sales can all help. That said, companies paying out more than they earn only have so much runway.

Rival Chevron is deemed to have a better balance sheet and better ability to keep its dividend, but its yield is closer to 5.6%. It is still hard to find many “oil bulls” these days, but Exxon Mobil stock has risen more than 50% from its panic-selling lows.

Does Simon Say an 11% Yield Is Ridiculous?

Simon Property Group (NYSE: SPG) is a top mall and retail destination REIT. The yield as it stands today would be more than 11%. With so many of its properties not open and with so many stores inside the properties now not very viable, a dividend cut seems pretty obvious here in the COVID-19 recession. Simon announced with its business update in May that its board of directors will declare a common stock dividend for its second quarter before the end of June. The company further announced in May that it intends to maintain a cash dividend and that it expects to distribute at least 100% of its REIT taxable income. That said, there are no assurances that it will have steady income that remains solid compared to past years.

Simon shares have recovered about 70% of their losses from the panic-selling peak, but they were still down almost 60% from its highs. With Simon trying to exit its planned acquisition of Taubman, that very well may result in a break-up or termination fee.

Wells Fargo Acts Like a 7.4% CD, That’s Not Insured

Wells Fargo & Co. (NYSE: WFC) is in a unique situation among the top banks in America. It effectively is forbidden from growing, its stock has been hammered and in 2019 it was allowed to raise its payout too much. While a $2.04 annualized payout was fine against last year’s $4.05 in earnings per share, the bank is not expected to make $1.00 per share in 2020 and is only expected to make $2.67 per share in 2021. The upcoming stress tests are going to be brutal on the banking sector, and there seems to be every reason to believe that regulators will either “suggest” or only approve certain capital return plans. After all, the banks are supposed to be lending the country money to operate smoothly.

One issue that may help Wells Fargo avoid a dividend cut is that Federal Reserve Jerome Powell has not been forceful in calling for automatic dividend cuts or suspensions. Former FDIC Chair Sheila Bair has been calling for dividend suspensions because of the unknown ramifications of the economy, but she is not in charge. Wells Fargo is also trading at a rare discount to its book value, but that book value declined from the end of 2019 through the first quarter (to $39.71 from $40.31) and the declines are likely to continue. The bank had almost $135 billion in tangible common equity and $183 billion in total equity.

Again, not all these dividends will be cut. Some are at much higher risk than others, and if the economy quickly moves out of the recession, then more of these payouts might be smoothed over by higher share prices.

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