Stock markets are regulated to protect the investing public, but there is a disclaimer: “Invest at your risk.” Whenever the word “risk” is present, always remember there is uncertainty. Moreover, the warning high yield equals high risk also applies to dividend investing.

On the TSX, there is no cap on dividend yields, whether stocks, real estate investment trusts (REITs), or exchange-traded funds (ETFs). It can go as high as 40%, although generally, a good dividend yield is between 2% and 6%. Anything above that range could be a red flag or dividend trap unless the company is an industry leader, a large-cap stock or a blue-chip asset.

Peyto Exploration & Development Corp. (TSX:PEY), PHX Energy Services (TSX:PHX), and Wall Financial Corp. (TSX:WFC) are enticing options to yield-hungry investors because the dividend offers are from 8.8% to 12.65%. Performance-wise, the three stocks are beating the broader market thus far in 2024. But are the dividends safe?

Monthly dividends

Peyto’s charm is not just the 8.84% dividend yield; the payout frequency is monthly, not quarterly. The $2.9 billion energy company develops and produces natural gas, oil, and natural gas liquids (NGLs) in Alberta’s deep basin. It has been drilling wells, constructing facilities, shooting seismic, and leasing mineral rights for 25 years.

At $14.94 per share, current investors are ahead 27.1% year to date on top of the succulent yield. The total dividend payment of $239 million in 2023 is 133% higher than in 2022, but not encouraging. Besides the 25% year-over-year earnings drop to $292.6 million, net debt increased 54% to $1.4 billion from a year ago, while the payout ratio is 97%.

Low payout ratio

As of this writing, PHX Energy Services trades at $8.85 per share (+11.7% year to date) and pays a 9.04% dividend. Also, the trailing one-year price return is 35.9%, while the total return in 3 years is 240.9%. While total dividends ($30.2 million) paid in 2023 were 99% higher than in 2022, the payout ratio is only 33.2%.

This $420.9 million growth-oriented oil and natural gas services company provides horizontal and directional drilling services and technologies to oil and natural gas exploration and development companies like Peyto.

The $656.3 million consolidated revenue in 2023 represents a 23% year-over-year increase and is also the highest in the company’s history. Earnings and excess cash flow soared 122% and 340% respectively to $95.6 million and 92.8 million versus 2022.

Over-the-top yield

Wall Financial is doing well despite the high-interest rate environment. If you invest today, the share price is $22.35 (+17.9% year to date), while the dividend yield is an over-the-top 12.65%. The $723.4 million real estate investment and development company derives revenue from the Rental, Hotel, and Development segments.

After three quarters in 2023, total revenue increased 8.2% year over year to $123.2 million, while net earnings dropped 53.4% to $21.7 million versus the same period in 2022. Notably, the dividend yield six months ago was 15.78%. Furthermore, the payout ratio is more than 400%.

Watch out for signs

Peyto and Wall Financial have market-beating returns but are risky and could be dividend traps because of high payout ratios or debt levels. However, PHX Energy Services deserves consideration for its thriving business, impressive financial results, and safer dividend payments.