This High-Yield, Passive Income Stock Is Worth the Dividend-Cut Risk

There's no way to sugarcoat the issue: Nursing homes bring vulnerable older adults into the exact group setting in which the coronavirus spreads most easily. In the early days of the COVID-19 pandemic, that led to steep declines in occupancy that have only just started to meaningfully reverse. That's one reason why Wall Street is worried that Omega Healthcare Investors (NYSE: OHI) could cut its dividend. But given the trends the company is seeing, that's a risk that might be worth taking.

Real estate investment trust (REIT) Omega Healthcare sports a dividend yield of 9.3%. That's huge when you compare it to the S&P 500's yield of roughly 1.4% and the 2.2% average yield for REITs, using the Vanguard Real Estate Index ETF as a proxy. In fact, even if Omega cut its dividend in half, the yield would still be more than twice that of the average REIT and three times the dividend yield of the S&P 500. The truth is, there is a real risk of a cut, though management has been very clear that the dividend isn't likely to be trimmed unless the board sees a long-term change in the company's prospects.

Based on the fact that the dividend hasn't been cut even after two years of pandemic issues, it appears that the board hasn't seen anything about the future that has it worried. That said, the adjusted funds from operations (FFO) payout ratio is high at around 90.5%. And the REIT is working with a number of troubled tenants to help them muddle through the pandemic hit, staff shortages, and the inflationary cost environment. That's all bad news, but what about the good news?

Source Fool.com