Wednesday, May 23, 2018

Recent Sell – OHI

Here’s a quick update on a sale in my portfolio. Sales are always hard, especially when times are good and investors are riding the coattails of one of the best performing bull markets in modern times. When things are rosy, we tend to feel that the good times will continue forever. The world has been awash in liquidity for a decade investors have been awarded for taking more risk.
But there is change in the air. As the monetary policy tightens and the central bankers sponsored punch bowl is taken away, I have been looking very closely at some of the fundamentals of my company holdings. During this review, I decided to liquidate one of my stocks.
I sold and closed my position in Omega Healthcare Investors Inc (OHI).

Recent Sell Decision

  • Main reason: De-risking. The company is a darling in the dividend growth sector. Most investors love it and swear by how amazingly well run and sweet the deal is for reaping 10% in yield. Just the yield should send up some red flags although from a cash flow perspective, the company is still seems ok. OHI took a beating over the past few quarters when it was disclosed that the #1 and #3 lease holder for their businesses will have trouble making rent payments due to a liquidity crunch. Perhaps the companies will come through and all this will blow over, but I decided to de-risk and sell anyway.
  • While the problems have been apparent for a while, the management team continued raising dividends every quarter and returning cash to shareholders hoping for the best — not the smartest decision imho.
  • In general REITs are under more pressure as the broad market has started selling off some of the high yielders as the interest rates climb. I think REITs are still a good place to be (as I believe that interest rates cannot rise too much without causing a financial storm), but only when I have full confidence in the company and its tenants.
  • This also fits into my overall goal for the year to move some of my funds away from individual stocks into broad ETFs — since I do not want to be watching and closely monitoring these companies regularly. See more details on my goals for 2018 here.
What do you think? Do you own OHI? Share your thoughts with a comment below.
Total Profit (including dividends)41.6%. Held and earned dividends for approx 5, so profit was ~8.3% per year.
Disclosure: Our full list of holdings is available here.

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