Buy: 33 shares @ 35.49 at 6/4/2015
Although this should not mean you should buy it as well, it did trigger me to dig some deeper.
Omega Healthcare Investors is a Real Estate Investment Trust, a REIT.While reading DGI blogs I have seen the term REIT regularly, but I had no idea what it was. The only things I knew were: high yield, high payout ratio and pretty risky if you compare it to regular Dividend Aristocrats which produce tangable products, like MCD, JNJ & KO.
Fortunately I came across the official website about REITs, www.reit.com. They provided a very solid, basic explanation. If you're not familiar with REITs, I suggest you read this website carefully.
After reading that, I concluded REITs could be a great addition to my portfolio, but I don't want too many of them. It is very good for diversification though. So, let's get into the interesting parameters of this REIT.
DGI stats
The attrictiveness of the stock was immediately clear when I took a look at the amazing 6.00% yield. They usually raise their dividends every quarter and they have been doing so for the last 11 quarters. With several raises per year, the snowball grows even faster!
Talking about growth, their DGR numbers are looking very good as well. The DGR-3 is 9.2% and the DGR-5 is even at 11.0%. Those are fantastic numbers if you combine them with the high yield.
Because REITs usually have a huge amount of depreciation on their statement, metrics like P/E and EPS are not very useful. Instead, we determine the valuation of a REIT by their price per funds from operations, or P/FFO. The lower the better. The P/FFO of OHI is 12.45, which is a very attractive value.
Last, the stock value took a hit over the last couple of months. The decline from the 52-week high value of $45.46 (which occurred in January) down to my entry point of $35.49 is roughly 22%. As you probably know, price is just a number, but this is another valid reason for current shareholders to average down.
Looking forward
Looking forward I think there is a lot of potential growth for the Healthcare sector.
Technically REITs are financial products, but as OHI invests in Healthcare facilities I think their profit highly depends on that sector as well.
I think this picture says it all.
Disclosure: Long MCD, JNJ, KO & OHI
Thanks for reading!
Good analysis DFS!
ReplyDeleteI oen OHI in my portfolio as well and i can surely appreciate your statement about not having too many REITs. That goes for about any sector as a general rule for us DGIs. I currently have too large a percentage of REITs and need to fix that.
Thanks for sharing your thoughts.
-Adam
Hi Adam,
DeleteThanks very much! It's appreciated, as I'm not very experienced writing these analyses. English is not my first language, so I'm pretty sure there are some spelling mistakes in there as well.
Appreciate the support and good luck with your own journey. I did a quick check earlier and you're definitely on the right track!
Best wishes, DfS
DfS,
ReplyDeleteGood buy there I believe. OHI is definitely one on my watchlist.
I just bought more WPC. I'm thinking about averaging down my HCP shares. And also VTR looks very good in the REIT sector. So many great(?) REIT ideas. But I need to watch out not to become seriously overweight there!
Thanks for adding me to your blogroll!
Hey Dividend Lord,
DeleteThanks for your support!
Especially REITs are dangerous to be overweight at, but I understand why many people seem to have a lot of them. The yield is so appealing.
As in many other situations I do think "safety first" is also applicable in this situation.
No problem at all :)
Best wishes, DfS