Last month, goeasy (TSX:GSY) became the latest dividend stock to pause its dividends. No dividend cut, no reduction in frequency, but a one-line declaration on its dividend page, “There are no future dividends presently declared for GSY:CA as of Apr 11th, 2026. The declaration and payment of dividends are at the discretion of the Company.”
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Identifying dividend traps
Dividend payments are the company’s way of sharing surplus cash flows with shareholders and are at the management’s discretion. But what if the company’s cash flows themselves become risky? Dividends take the first hit. Such instances were visible in the post-pandemic environment.
Commercial REITs paused dividends altogether after 2022 as the pandemic crisis altered their world. While not a complete pause, telecom stocks paused dividend growth, and some even slashed dividends and altered their dividend policy as a regulatory change made pricing competitive.
Sometimes the market is irrational in the short term, as it senses risk and reacts to it instead of responding. But value investors grab the overreaction opportunity to buy fundamentally strong stocks at the dip. This act of value investors sees the stock price rebound later.
However, the market is not always irrational and captures weak fundamentals, because of which the stock price falls. They could be dividend traps, which you can identify by scrutinizing the dividend yield of 10% and above. 10% is too good to be a true dividend yield, and that is because the market pulls down the stock on dividend cuts.
goeasy’s dividend trap
In the case of goeasy, the market reaction was correct as the lender’s charge-off rates spiked up to 23.8% in the fourth quarter of 2025 from 9.2% a year ago. The fourth quarter earnings unveiled the wrong accounting treatment of certain customer payments in transit. A short seller report warned about this in September 2025, which the lender denied. However, the series of events that followed made those warnings real, such as the resignation of the chief financial officer and chief executive officer.
The bubble burst in the first-quarter earnings, and the subprime lender shifted to balance sheet cleaning. goeasy realized a goodwill impairment charge of $159.6 million to its LendCare business. It increased the credit loss allowance from 7.8% as at December 31, 2024, to 9.6% as at December 31, 2025.
All these figures hint that credit risk is beyond the manageable range, and the lender will have to bear higher loan defaults. To maintain liquidity, the lender has paused dividends. Whether the pause is temporary or permanent is unclear. goeasy’s 70% dip in share price after the earnings release has inflated the dividend yield to 18.6% because of the way yield is calculated: past 12 months dividend/share price. Until the dividend pause continues for four straight quarters, the yields will be elevated. Do not fall into this dividend trap, as a high yield is no dividend in this scenario.
Timbercreek Financial’s dividend trap
The short-term mortgage provider Timbercreek Financial (TSX:TF) is facing higher credit risk, leaving little flexibility for the lender to sustain its dividends. Although the lender has not announced dividend cuts, the payout ratio of 96.7% in 2025, up from 88.3% in 2024, rings a warning bell. The fair value through profit and loss (FVTPL) of its mortgage portfolio has decreased. The high credit risk has reduced the lender’s opportunity to grow its loan portfolio and instead diverted the cash and liquidity to credit loss provision.
The lender, which declared a special dividend of $0.0575 during rising interest rates in 2024, is now struggling to sustain its dividends. Even Timbercreek Financial’s share price fell almost 9% after the first-quarter earnings, which increased its yield to 10.2%. Although the yield looks attractive, the fundamentals do not show value. A dividend cut will still not ease the lender’s financial stress.
Is Telus a dividend trap
Telus Corporation’s (TSX:T) stock price also dipped below $17, inflating its yield to 10.2%. Investors fear a dividend cut, but a 50% cut would preserve $1 billion in cash, which it can divert towards repaying debt and reducing the interest burden. This dip is a value opportunity and not a dividend trap, as a cut will unlock financial flexibility.
