Buy Omega Healthcare Investors: A REIT For Income With 9.3% Yield, Buy The COVID Dip

Summary

Some Omega Healthcare Investors operators are having problems, but Omega management has shown thru the years before COVID that they know how to buy and sell their real estate assets.

Omega Healthcare Investors has a dividend of $0.67/Qtr. and is fully covered by the AFFO and presently has a yield of 9.3%, which is great for a REIT.

My estimated five-year forward CAGR of 8% is good and will give you growth with the increasing senior citizen population and the vaccine shots protecting the residents and staff.

Sanja Radin/iStock via Getty Images Omega Healthcare Investors ( OHI ) is a buy for the high-income investor who wants future growth. Omega Healthcare Investors is one of the largest skilled nursing care facility companies in the United States and the United Kingdom. The management of OHI has proven by past results that it can sell weak properties and buy new properties with higher rents that increase the FFO. The stock comprises 5.53% of The Good Business Portfolio; my IRA portfolio of good business companies is balanced among all investing styles. The current price can go up 8% when the COVID-19 virus is completely controlled this summer by antiviral drugs and increased vaccine usage. The company collected 89% of its rent in the last quarter and is stable with the high vaccination rate of its staff and residents in the United States and England.

As I have said before in previous articles. I use a set of guidelines that I codified over the last few years to review the companies in The Good Business Portfolio (my portfolio) and other companies that I am reviewing. For a complete set of guidelines, please see my article ” The Good Business Portfolio: Update to Guidelines, March 2020 “. These guidelines provide me with a balanced portfolio of income, defensive, total return, and growing companies that hopefully keep me ahead of the Dow average. The good, buy the dip

The main reason to own OHI is to have a steady quarterly income. Omega Healthcare Investors has had a reasonable steady income with increases for seventeen years with the pandemic causing a flat to a bit down FFO because of the COVID pandemic. OHI has an above-average dividend yield of 9.3%, a good choice for the dividend income investor while we wait for COVID to become endemic. The dividend is frozen at $0.67/Qtr. while the company fixes the problems created by the virus. The AFFO covers the dividend, and the AFFO is growing slowly with the hope of increasing the dividend later this year. The five-year average payout ratio is high, at 87%, which is normal for a REIT. After paying the dividend, this leaves cash remaining for increasing the business of the company by buying new properties and buying back shares. The graphic below shows the steady growth of dividends for over seventeen years before COVID hit. I expect the dividend to start increasing again in about six months to a year forward. November 2020 investor presentation In addition to the dividend income, I want the CAGR for the next few years to be at least 8%. My five-year forward estimated CAGR of 8% meets my guideline requirement. This good future growth for Omega Healthcare Investors can continue its uptrend benefiting from the continued strong management of the company properties. They know how to buy and sell properties and make a profit. This solid buying and selling of properties are what the management does best and is why I think the company will continue to grow. The Company’s leases include triple-net leases, which require the tenants to pay all property-related expenses reducing risk for the shareholder. New investments for the year ended December 31, 2021, totaled approximately $841 million, including $164 million in capital expenditures. Added new properties are driving the growth to their existing portfolio.

OHI has a good projected cash flow at $167 million/year, and the company uses some of the cash to expand its business by buying, selling and increasing properties at a profit that will, in time, increase dividends, adding value for the shareholders. A quote from the 4th quarter earns call by the CEO Taylor Pickett sums up the cautiously optimistic view for the past quarter and the actions taken to help some of their operators. I will discuss our fourth-quarter financial results, skilled nursing facility industry trends, and operator liquidity issues. Our fourth-quarter adjusted FFO is $0.77 per share, and funds available for distribution are $0.72 per share. We have […]

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