Investors in National CineMedia (NASDAQ:NCMI) are enjoying hugely generous dividend yields right now. The movie-theater advertising specialist's yields have tripled in four years, standing at nearly 13% today.

Is this massive dividend yield built to last, or is it more of a red flag marking serious problems in the underlying business model?

Let's find out.

Young businessman reading something on his laptop, with a worried look on his face.

Image source: Getty Images.

Why is this dividend yield so rich?

Some stocks raise their dividend yields by boosting their annual payouts per share in a consistent and sustainable way. Others see their yields skyrocket due to plunging share prices. Unfortunately, National CineMedia falls in the second category.

The stock has lost two-thirds of its market value over the four-year period mentioned above, and the quarterly payouts per share have stayed constant since the fall of 2011. Lower share prices plus stable payout equals rising yields -- for all the wrong reasons.

Is it sustainable?

On the upside, National CineMedia only spent $55.3 million on its dividend policy over the last four quarters. It was funded out of $132.6 million in free cash flow. The company isn't doing a lot of share buybacks or debt retirement, so there's theoretically plenty of room to maintain or even increase the dividend payouts.

On the other hand, the share count is rising fast.

Movie theater chain AMC Entertainment (NYSE:AMC), which owned 17% of National CineMedia's business operations at the start of 2017, must decrease its ownership to less than 5% by the middle of 2019. AMC is working toward that goal by converting its membership units in National CineMedia, LLC, into shares of National CineMedia, Inc. -- the holding company whose shares you can buy on the public market. This is done by court order, as AMC picked up a competing advertising service with its $1.1 billion buyout of Carmike Cinemas.

So the number of shares outstanding now sits at 76.2 million, up from 60 million a year earlier. That's diluting the interests of common shareholders by 27%, but also raising the dividend budget by the same amount. National CineMedia's dividend policy is about to become far more expensive.

What's next?

So far, the company has stayed the course and doubled down on the same old quarterly dividend checks of $0.22 per share for another cycle. But I wouldn't be surprised to see the payments per share coming down in order to conserve National CineMedia's cash flows.

"We intend to pay a regular quarterly dividend for the foreseeable future at the discretion of the Board of Directors, consistent with our intention to distribute over time a substantial portion of our free cash flow," said CFO Katie Scherping in a discussion of National CineMedia's third-quarter results.

That's far from a promise to maintain the payouts at the current levels of abundant generosity, leaving the door open for downward adjustments as needed.

And don't forget that Hollywood at large is suffering low attendance numbers these days. Higher ticket prices may conserve the headline box office number but they don't exactly help National CineMedia's quest for advertiser interest. Juicy dividends or not, I'd hesitate to invest in this company as its core business keeps marching into darker industry conditions.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.