There must be a catch. That's what most of us think when we come across something that seems almost too good to be true. 

For example, Omega Healthcare Investors (OHI -1.13%) pays a dividend that yields about 9.2% at the current share price. What's the catch? That yield is so high in large part because the shares of the real estate investment trust (REIT) have tanked. 

But Omega has mounted a solid rebound in recent weeks. Should you buy this ultra-high-yield dividend stock on the bounce?

Behind Omega's fall

It's important to first understand why Omega plunged. There are several factors in play. For example, higher interest rates hurt REITs in general because they increase the cost of borrowing. However, the biggest reason behind Omega's dismal stock performance is that the industry it serves has faced major challenges.

Omega is the largest REIT that's focused on skilled nursing facilities (SNFs) -- and COVID-19 hit SNF operators like a sledgehammer. While the picture in that space has improved considerably, many SNF operators continue to feel the effects of the pandemic, including lower occupancy rates and difficulty attracting and retaining staff.

The lower occupancy levels have hurt operators' revenue. Meanwhile, their expenses have risen because of inflation and higher staffing costs. And the problems of its tenants have affected Omega.

As of the end of 2022, tenants representing around 10% of Omega's total annualized contractual rent and mortgage revenue had not paid all of the rent and mortgage payments that were due. In the first quarter of 2023, Omega was working with three SNF operators to restructure their agreements, including deals to allow two of them to defer rent payments.

Omega's revenue fell 12.5% year over year in Q1, and its adjusted funds from operations declined by nearly 13%. The company's funds available for distribution were less than its dividend payout -- something income investors never want to see from a company in their portfolios.

Making a comeback

Despite those gloomy financial results, Omega stock jumped after the REIT delivered its Q1 report. Why? Management seems to see a light at the end of the tunnel.

Omega CEO Taylor Pickett stated in the Q1 earnings press release that as it wraps up its deal restructurings, the affected SNF operators are starting to pay rents again. The REIT is also making progress on redeploying funds raised from the sale of several properties. Pickett thinks that Omega's dividend payout ratio and leverage should improve significantly this year.

The outlook for SNF operators also appears to be improving somewhat. Omega Chief Operating Officer Dan Booth noted during the Q1 conference call that occupancy for the REIT's overall core portfolio rose to 79.8% as of mid-April 2023 from 74.6% in January 2022.

What about those staffing issues? Megan Krull, Omega's senior vice president of operations, said on the earnings call that the SNF sector "has clearly not recovered from a staffing perspective." However, she added that Omega "continue[s] to hear about positive momentum from our operators, with certain markets better off than others."

Buy on the bounce?

Conditions are improving. Omega's dividend doesn't appear to be in imminent danger of being cut. So is this a stock to buy on the bounce? I think that investors should remain cautious for now.

Omega's CEO candidly acknowledged in the Q1 press release that despite some improvements, the SNF industry "is still on the road to recovery and remains quite fragile." He's right.

There's also what Krull referred to in the Q1 call as "the elephant in the room." The Centers for Medicare and Medicaid Services (CMS) is expected to release its proposed payment rule soon. SNF operators are concerned that CMS could impose an onerous staffing mandate on them. If that happens, it could wipe out all of the financial progress made by the industry in recent months. 

Over the long run, the aging population in the U.S. should provide a solid tailwind for Omega Healthcare Investors. For now, though, my view is that income investors are probably better off waiting on the sidelines with this stock.