Omega Healthcare Investors: Strong Buy – Omega Healthcare Investors, Inc (NYSE:OHI)


Omega Healthcare Investors, Inc. (NYSE:OHI) is a good deal for income investors. The health care REIT is growing funds from operations at a good clip, has great dividend coverage and a low AFFO valuation. Importantly, Omega Healthcare Investors grows its dividend by $0.01/share per quarter, giving income investors a high degree of dividend visibility. An investment in Omega Healthcare Investors throws off a 7.54 percent dividend.

Omega Healthcare Investors invests in skilled nursing and senior housing facilities, capitalizing on growing demand for senior-related health care, one of the strongest macro trends of our time. Omega Healthcare Investors is a good addition to a DGI portfolio, in my opinion, allowing income investors to build wealth long term without being too involved with the investment.

Dividend Safety And Dividend Growth

As income investors we want our real estate investment trust to pay a ‘safe’ dividend, first and foremost. Safe means that the REIT covers its dividend with cash flow.

In addition to ‘safety’ (as it relates to the current dividend payout), income investors also like to see growth in the dividend rate over time in order to account for the negative effects of inflation. In short, income investors look for covered dividends (safety today) and potential for a higher dividend in the future (growth). A good income vehicle covers both aspects.

Fortunately, Omega Healthcare Investors affords investors with both a ‘safe’ dividend and potential for dividend growth over the long haul.

Omega Healthcare Investors pulled in $0.80/share, on average, in funds from operations in the last seven quarters ($0.84/share on average in terms of AFFO) which compares favorably to an average dividend rate of $0.58/share over the same time period. Omega Healthcare Investors’ dividend coverage stats are very robust, meaning that the dividend is safe, or low-risk.

Source: Achilles Research

Another way of looking at things is visualizing Omega Healthcare Investors’ FFO and AFFO payout ratios. The health care REIT had an average FFO payout ratio of 74 percent in the last seven quarters, and an average AFFO payout ratio of 70 percent, leaving significant headroom for dividend growth.

Source: Achilles Research

Valuation And Guidance

Omega Healthcare Investors expects its adjusted funds from operations to fall into a range of $3.40-$3.44/share in 2017. As a result, a piece of the health care REIT’s business costs income investors 9.8x 2017e adjusted funds from operations. Paying less than ten times AFFO for a quality income vehicle that targets a $0.01/share dividend hike each quarter and that yields 7.54 percent is a very good deal in my opinion.

Your Takeaway

Omega Healthcare Investors is a health care REIT that I could own forever. The company has everything I am looking for in a quality income vehicle: Robust FFO growth, very good dividend coverage, dividend visibility, a high investment yield, and a reasonable AFFO valuation. Omega Healthcare Investors puts wealth building on autopilot, and lets investors sleep calmly at night. Buy for income generation and capital appreciation.

If you like to read more of my articles, and like to be kept up to date with the companies I cover, I kindly ask you that you scroll to the top of this page and click ‘follow‘. I am largely investing in dividend paying stocks, but also venture out occasionally and cover special situations that offer appealing reward-to-risk ratios and have potential for significant capital appreciation. Above all, my immediate investment goal is to achieve financial independence.

Disclosure: I am/we are long OHI.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.