Is It Safe? Vornado's Hidden Dividend Cut

Vornado's funds from operations peaked at $5.89 in 2007 before falling to $5.16 last year. Analysts expect that amount to slide to $4.46 this year and $4.07 in 2010. That's hardly a solid financial base to support an annual cash payout of $3.80.

Investors looking for dividends might be wise to consider Equity Residential(EQR Quote) or HCP(HCP Quote) instead. They offer dividend yields of at least 8.5%, paid entirely in cash. Their shares are down more than 20% this year, creating a potential buying opportunity.

To be sure, Vornado has been taking steps to bolster its balance sheet. In April, the company sold $710 million in stock and offered to buy back more than $500 million in notes that are due over the next two years. That might position the company to acquire smaller REITs that are struggling with debt.

Those moves could benefit long-term investors who can stomach what amounts to a dividend cut this year. Those who can't might be better off looking elsewhere in the market.

TheStreet.com Ratings assigns Vornado a grade of C-minus, a "hold" recommendation.