Danger Lurks for These 3 High-Yield Dividend Stocks

High-yield dividends by themselves don’t necessarily scream risk, but high-yielding dividends in companies that are having financial difficulties do. That’s why it makes sense to look at a company’s long-term financial situation when seeking dividend income…

If a company is in such dire straits that its dividend is at risk, it could leave investors with a stock that’s already lost value, and that will sink even further once the dividend is pared.

Omega Healthcare (NYSE:OHI)Energy Transfer LP (NYSE:ET), and ExxonMobil (NYSE:XOM) all have dividends with yields above 7%. Their dividends may be enticing, but there’s definitely a catch as the three are fighting market trends.

The long-term health of Omega Healthcare is in doubt

Omega Healthcare is a real estate investment trust that specializes in long-term healthcare facilities. The company also has raised its dividend for the past 17 years and its current quarterly dividend of $0.67 offers a yield of 7.2%.

At first glance, Omega should be well placed for growth. As baby boomers age, more people are likely to require long-term care. According to the U.S. Census, the number of people in the United States age 65 and over will overtake the number of people 18 and under by 2034 for the first time.

However, the impact the coronavirus pandemic has had on the residents of long-term care facilities has caused a fundamental shift, and is one reason why Omega’s shares are down more than 12% year to date.

More seniors are seeking alternate ways to age in place, not wanting to get locked down in a facility where relatives may not be able to visit. The population in U.S. nursing homes is down by 15% since the end of 2019, The Wall Street Journal reported this month. Then, there’s the risk that COVID-19 has highlighted. Though less than 1% of people in this country live in long-term care facilities, as of Dec. 24, the COVID Tracking Project said that 38% of the deaths from COVID-19 have been in extended-care facilities.

Omega Healthcare is better suited than many companies in the long-term healthcare space because its triple-net leases put all expenses on tenants, and the company’s size, with 957 facilities under lease, gives it scale advantages. Despite that, the drop in the company’s funds from operations (FFO) in the quarter was dramatic: $15.1 million, compared to $163.1 million year over year, boosting the company’s forward FFO payout ratio on its dividend to 84.4%. That’s more than 20% higher than a typical REIT.

The company said it…

Continue reading at THE MOTLEY FOOL