Stocks with high dividend yields can be tempting for cautious investors seeking steady payouts. But they also often come with caveats. Take the newly public Babcock & Brown Air ( FLY). The Ireland-based aircraft-leasing firm went public last week at $23 per share, and has said it plans to pay a quarterly dividend of 50 cents starting in 2008. That amounts to an 8.7% dividend yield based on share price, which has stayed around $23 since the initial public offering. The relatively high yield is enticing. So is the fact that global demand is fueling a boom in the aircraft-leasing market. But the fine details of Babcock & Brown's lengthy prospectus show several reasons for investors to be wary. The biggest issue is that the company is set to pay out nearly all of its earnings through dividends, according to calculations by TheStreet.com. In fact, it appears that Babcock & Brown's payouts could far exceed what it earns next year. The other issue of concern is that U.S. investors cannot take advantage of the reduced dividend tax when buying the stock, because it is a passive foreign investment company. In some instances, investors could see increased taxes. Moreover, because Babcock & Brown operates in a capital-intensive business, its high dividend payout ratio is questionable. The company owns airplanes that it leases to aircraft operators -- a business that requires substantial capital expenditures for maintenance and eventual replacement of aging airplanes. So how bad is the problem?