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Analysis of Omega Healthcare Investors

Omega Healthcare Investors (OHI) invests in healthcare facilities, principally long-term healthcare facilities in the United States. It provides lease or mortgage financing to qualified operators of skilled nursing facilities , as well as to assisted living facilities , independent living facilities, and rehabilitation and acute care facilities. This real estate investment trust has raised dividends for ten years in a row. Back in March, I initiated a position in Omega Healthcare Investors and Digital Realty Trust (DLR), after I sold my position in Universal Healthcare Realty Investors (UHT).

One of the reasons why I have been hesitant to look at Omega Healthcare before, was the fact that the REIT cut distributions in 2000, and eliminated them for 2001 and 2002.  The risk with a company that eliminates dividends once, is that the conditions might appear again, thus causing the firm to become a repeat dividend cut offender. In this article, I will review the operating performance over the past decade, and conclude on whether the company is a good addition to an investor’s portfolio.I will evaluate this REIT using the five criteria I use as outlined in an earlier article this week.

Since 2005, FFO has grown by 150%, while the dividend has doubled in the same period.

Over the past decade, dividends have grown from $0.72/share in 2004 to $1.69/share by 2012

I usually prefer a margin of safety in dividend payments. At 82%, the FFO Payout ratio is sustainable. A lower payout is always a plus, because it allows the company to absorb any short-term fluctuation in FFO, which lowers risk to dividend payments.

The ten largest tenants account for 68% of revenues.

Currently, I find Omega Healthcare Investors to be attractively valued at 15.50 times FFO and yielding 5.70%.

Relevant Articles:

Spring Cleaning My Income Portfolio, Part II
Margin of Safety in Dividends
Four High Yield REITs for current income
National Retail Properties (NNN) Dividend Stock Analysis
Dividend Achievers Offer Income Growth and Capital Appreciation Potential

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