Cruise stocks are getting rocked these days, and naturally the declines are boosting dividend yields. Carnival Cruise Line (CCL -3.40%) (CUK -2.87%) and Royal Caribbean International (RCL -2.24%) -- the industry's two largest players -- are currently yielding 13.9% and 9%, respectively, as of Friday's close. Smaller rival Norwegian Cruise Line (NCLH -3.96%) has never declared a distribution in its seven years of public trading.

Value investors have been kicking the rudders of the stocks, trying to time an entry. Now income investors are finding Carnival and Royal Caribbean pinging on their high-yield radar. Scoring a yield as high as 14% for depressed stocks with the potential to bounce back would seem like a perfect double play, but there are no guarantees that the companies will bounce back -- and at this point it would be shocking if the quarterly payouts continue for much longer. 

The top deck of Royal Caribbean's Anthem ship at night.

Image source: Royal Caribbean.

That sinking feeling

There isn't a lot that's going right for the cruise industry these days, but right now nothing is as bad as the ships not sailing. In an effort to control COVID-19 -- a problem that has already turned a few previous sailings into quarantine nightmares -- most near-term itineraries were cancelled earlier this month. There is no indication on when vessels will begin taking on passengers again. Royal Caribbean is hoping to start sailing again as early as mid-May for some of its ships, but that's a generous timeline that may very well be bumped later into 2020.

You need profits to pay sustainable dividends, and you can't generate earnings when your ships aren't generating any revenue. Toss in the potential legal liabilities, the cash flow burden of refunds, and consumer sentiment that is going to have to be wooed all over again when the coronavirus crisis has passed, and you have an industry caught between a dock and a hard place.

The losses this year will be steep, and there is no financial relief in sight. Since none of the three cruise lines are registered U.S. companies -- despite a heavy corporate presence in Miami -- they are not eligible to apply for the recently signed government bailout plan. 

Cruise lines have never been a greater credit risk than they are right now, but that didn't stop Royal Caribbean from entering into a $2.2 billion short-term secured term loan facility. Carnival is reportedly looking to shore up its liquidity with a $7 billion debt raise.

It's hard to justify dividends at current rates when companies are hungry for cash. It's hard to bank on life returning to business as usual when there are still ships out there with quarantined passengers. Dividend cuts are likely later this year, and eliminating the distributions entirely is on the table if the losses continue.

With the likely global recession already a challenge for consumer-facing travel companies, the cruise industry will continue to be a hard sell for shareholders and passengers alike at current depressed prices.