Editor's pick: This article was originally published March 17.

HCP  (HCP - Get Report) is the only real estate investment trust in the S&P Dividend Aristocrats Index and is the top high-yield dividend stock in the group, making it a favorite income investment across many retirement portfolios.

The dividend aristocrats list is popular because it contains companies in the S&P 500 that have raised their dividends for at least 25 consecutive years and collectively outperformed the market over the past decade with less price volatility.

Conservative dividend investors understand that dividend growth is usually a clear sign of a company's strong financial health. Many stocks that consistently increase their dividend each year consequently outperform the market and attract a large following of investors.

HCP's stock is no exception, returning 10.1% per year between 2006 and 2015, topping the S&P 500's annualized return of 7.4%.

However, the company's stock has fallen by more than 15% over the past year. HCP's dividend has moved into high-yield territory, which could either make the stock a bargain for retirement income or a risky value trap.

Let's dig into HCP's business to find out if its stock is worth buying for our Top 20 Dividend Stocks or Conservative Retirees dividend portfolios.

HCP is a health care REIT with more than 1,200 properties.

The company rents out its properties to health care companies such as senior living centers and doctors' offices, and its biggest segments by revenue are senior housing (42% of 2015 sales), post-acute/skilled nursing (24%) and medical offices (17%). HCP's two largest customers accounted for 33% of its revenue last year (HCR ManorCare 23% and Brookdale Senior Living 10%).

Competitive Advantages

HCP has been a historically strong investment for several reasons. 

In an investor presentation, HCP's management team estimated that the company's total market size is about $1 trillion but publicly traded REITs have less than 20% market share.

As health care continues consolidating to save costs, there should be more consolidation opportunities for HCP. Much of the company's growth since it went public in 1985 has been from acquisitions, and this looks likely to continue.

Many investors also think that health care is one of the best stock sectors for dividends because of its non-discretionary services and growing demand trends from an aging population and improving standards of living.

HCP's business held up well during the last recession as sales were about flat in fiscal year 2009. The company also has very strong long-term relationships with its tenants, which help it maintain high occupancy rates across its properties.  

Some Risks

Although HCP possesses many attractive qualities, it faces risks from customer concentration, changing government reimbursement models and the health of capital markets.

HCP's two largest customers, HCR ManorCare and Brookdale Senior Living, are experiencing challenges.

HCR ManorCare is dealing with unfavorable industry trends in skilled-nursing facilities in part caused by its dependence on Medicare and Medicaid reimbursements. Brookdale is the largest provider of senior-living care in the country and is being challenged by lower occupancy levels.

About 25% of HCP's annualized rental payments received from tenants depend on Medicare and Medicaid reimbursements, which creates risk because the government's reimbursement models are constantly evolving. This makes some parts of health care more or less attractive and profitable.

As a REIT, HCP also depends more on capital markets for growth. REITs are required to pay out 90% of their earnings as a dividend to keep their REIT classification.

As a result, they have little capital left for reimbursement and depend more on equity and debt markets to finance their growth.

For example, HCP's diluted shares outstanding have more than tripled over the past decade. REITs have less of a margin of safety compared with traditional companies with lower payout ratios because they rely more on the health of capital markets.

Is the Dividend Safe?

When a company's dividend yield exceeds 6%, caution is usually warranted. High-yield dividend stocks are often experiencing fundamental challenges that could result in a dividend cut.

We created a dividend rating system that evaluates the safety of a company's dividend payment. Learn more about Dividend Safety Score by clicking here, but it essentially analyzes a company's payout ratios, balance sheet, recession performance, profitability trends and more to rate the dividend's safety.

HCP's dividend scores slightly below average for safety. Given the company's REIT classification, we look at a different payout ratio measure than we would for traditional companies because REITs record large depreciation charges each year that lower their reported earnings.

For this reason and others, REITs report non-generally accepted accounting principles metrics that can provide a more representative analysis of their cash flow and dividend coverage. One measure is funds available for distribution, which is similar to free cash flow but for a REIT.

HCP expects 2016 FAD to range between $2.62 and $2.68 a share, which suggests a forward-looking payout ratio of about 90%. This would be HCP's highest payout ratio since 2004, and it seems particularly risky, given the murky headwinds affecting HCP's largest customers.

If changing reimbursement models continue resulting in lower rates and shorter patient stays for HCR ManorCare, HCP could be forced to reduce the rent it charges this major customer. HCP is selling off non-core strategic assets from HCR ManorCare as it continues working to reduce its exposure to this tenant, but nothing happens overnight.

At a guess, HCP's dividend will remain safe, but there is risk of a moderate reduction if conditions deteriorate more than expected at Brookdale Senior Living or HCR ManorCare this year. However, we don't expect such deterioration would result in a major cut to HCP's dividend. 

REIT's Valuation 
HCP's stock trades at about 12.3 times forward FAD guidance and has a high dividend yield of 7.1%, which is meaningfully higher than its five-year average dividend yield of 5.1%. If HCP continues to generate operating income growth of 3% per year, its stock appears to offer annual total return potential of about 10%.

For investors wondering when they should sell their shares, it is hard to argue that HCP is expensive.

Despite the stock's seemingly attractive price, it is hard to get comfortable with the risks posed by changing health care reimbursements and the company's extreme customer concentration. These issues are hard to get a handle on, but they critically affect HCP's long-term growth potential. 

HCP's high-yield dividend payment seems more likely than not to remain safe for now, but that could change if the company's largest customer, HCR ManorCare, is forced to renegotiate its rent even lower again this year. Given our focus on safe income growth and capital preservation, we prefer to remain invested in some of our favorite blue-chip dividend stocks instead.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.