Is This 8.6% Yield Safe?

Each time I write my Income Investors column, I often have to make the tough choice between two deserving candidates. Invariably, the first stock will have a lower upfront yield (say four percent), but offers a high degree of safety. The other one might offer a bigger payout today (say eight percent), but faces the higher possibility of a dividend cut later. I know that some investors want to read more about stock “A,” but others want to hear more about stock “B.” As they say, you can’t make everyone happy. Or can you?

Today I’m going to introduce you to what could be stock “C”: Sabra Health Care REIT Inc (NASDAQ:SBRA). The partnership has assembled an impressive portfolio of nursing homes, specialty hospitals, and senior living communities. Management also invests in mortgage loans on new developments, which throws off steady interest income. These investments have funded a respectable dividend yield (8.6% at the time of this writing). But can you really trust such an oversized payout? Let’s dive into the financials. The first thing you need to check when evaluating a company’s dividend safety is cash flow.

Source: Income Investors

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