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Omega Healthcare Investors Inc. (OHI) Stock Analysis Pollie Style

Today another analysis form Polliesdividend. It is an analysis of a quarterly dividend stock, with a high dividend Yield. It’s not hard to see the appeal of a high yield stock, particularly if you try to live off your investments. And if you reinvest your dividends in new shares, your share count will grow faster, speeding up the process of compounding.

Why OHI you ask? Just like in Europe, America has a lot of Baby Boomers. And they will soon be retiring. They will need medical care and good assisted living facilities for the next 30 years. Does that answer your question?

This analysis is on Omega Healthcare Investors Inc. (OHI).

Company (from google finance): Omega Healthcare Investors inc. is a self-administered real estate investment trust (REIT). The Company invests in income producing healthcare facilities; long-term care facilities located throughout the United States. The Company provides lease or mortgage financing to qualified operators of skilled nursing facilities (SNFs) and assisted living facilities (ALFs), independent living facilities and rehabilitation and acute care facilities. The Company maintains a portfolio of long-term healthcare facilities and mortgages on healthcare facilities located throughout the United States. The Company’s investments are operated by a diverse group of established, middle-market healthcare operators.
Can I explain this to a 10-year old? What Does This Company Do?
This company owns care homes and specialty hospitals. In 37 states of the US their facilities can be found. Besides owning these facilities, hey also provide the mortgage for facilities.

Dividend Aristocrat: OHI is paying Dividend for 13 years in a row. It is therefore a Dividend Contender on the CCC-list from David Fish! (Nr. 237) They do not have any stars on Morningstar.com. It is a Dividend Contender but not yet a dividend Aristocrat, so that’s a fail!

Dividend Yield > 2.5%: The dividend Yield of OHI is 5.3%. This is above the industry average of 4.5%. But it is just below the 5 years average (6.5%). The last 10 quarters they raised the dividend every time (a small amount). The Yield is above the requirements of the Pollie-Code, and therefore it passed the second Pollie-code.

Dividend payout <70%: The dividend payout is roughly 126%. As you, my dear readers know a REIT is required by law to distribute a certain percentage of earnings (this figure now sits at around 90% for REITs). For this reason, it can be misleading to compare the ratios of companies operating in different industries. Because the dividend is above the projected earning this is a fail.

DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 8.6, 9.2, 11.0 and 10.9. With a 3-years average over 9%. This is a little low, because I like DGR’s of more than 10%. But is above the requirements of the Pollie-code, so it is a pass.

P/E-ratio < 15: OHI has a current P/E ratio is 23.85. And is way lower then their 5 years average (35). I couldn’t find an industry average. This metric is above the requirement of the Pollie-Code. Therefore this is a fail.

EPS > 0: The EPS is 1.86. So OHI passed the sixth Pollie-Code

ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 15.5%. This is another pass.

Market Cap. > 100M: No problem at this point. The Market cap. Is more than $ 5.553 Mil. You guested it already: Another pass.

Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 16.3. This is therefore a pass on the Pollie-code.

Stock price 52wk high-25%: The 52 wk. high and low are: 45.46 and 31.47. This means that OHI will be in my buying zone when the stock price is below 41.96 ((45.46-31.47)*0,75 + 31.47). At this moment OHI is trading for $40.45. Therefore it is a pass on the Pollie-Code.

Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for OHI is 0.75.

Conclusion: When I look at my analysis, OHI passed 7 out of 10 from the Pollie-code! The Pollie-code failed at the P/E-ratio, Payout ratio and it is not an Aristocrat. Based on these figures I will put OHI on my watch list. The price at this moment is just too high. However I think OHI could be one of the key players in their industry, and the demand for (health) care will only grow in the future (remember the baby boomers). And if we take a look at their financial numbers you can see that besides an increasing dividend, their revenue also keeps growing. This is really good news.All this information together I’m serious thinking about adding OHI to my Vrijheid Fonds.

What are you – the readers, thoughts on Omega Healthcare Investors Inc.? Is it a buy, do you own it?

Please comment on my analysis and thanks for stopping by!

Pollie.

DISCLAIMER: I’M NOT A REGISTERED INVESTMENT ADVISER, INVESTMENT PROFESSIONAL, BROKERAGE FIRM OR INVESTMENT COMPANY. READERS ARE ADVISED THAT INFORMATION ON THE WEBSITE IS ISSUED SOLELY FOR INFORMATION PURPOSES AND NOT TO BE CONSTRUED AS AN OFFER OR RECOMMENDATION TO BUY, HOLD, OR SELL ANY SECURITIES. ALL INFORMATION, OPINIONS, AND ANALYSES INCLUDED ARE BASED ON SOURCES BELIEVED TO BE RELIABLE, BUT NO REPRESENTATION OR WARRANTY IS MADE CONCERNING ACCURACY, CORRECTNESS, TIMELINESS, OR APPROPRIATENESS. PLEASE CONSULT WITH AN INVESTMENT PROFESSIONAL BEFORE INVESTING ANY OF YOUR MONEY.

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16 thoughts on “Omega Healthcare Investors Inc. (OHI) Stock Analysis Pollie Style

  1. roadmap2retire

    P/E and payout ratios dont make any sense for REITs. You need to evaluate slightly differently when it comes to REITs. You want to look at FFO (funds from operations) or AFFO (Adjusted funds from operations)…and an equivalent to check is P/FFO or P/AFFO as you do with P/E for other companies.
    I dont think the stock is ridiculously overvalued…but its not undervalued either. Its fairly valued imo. Ive owned OHI for a while and have been very happy with it…love the quarterly dividend raises! Granted, it doesnt have the track record. Another company taht has the track record and is much more attractive in this space is HCP.

    Best wishes
    R2R

    1. polliesdividend Post author

      Hello R2R,
      Thanks for stopping by, and taking the time to comment on my post. And much more: learning me something new! I really appreciate it!
      I’ll look into FFO and AFFO.
      HCP is a new company for me. I will look into it.
      Thanks again!
      I’m proud to be oart of a community that helps each other

      Cheers,
      Pollie

      1. roadmap2retire

        No problem 🙂
        Someone had to point that out and teach it to me when I started out as well..so, im just passing it along. I was making the same mistake of evaluating REITs using traditional metrics such as PE and thought the valuations were ridiculous.
        Btw, as for the payout ratios, by definition – atleast in the US, the IRS requires the companies to pay out 90% of their income as distributions. So, dont be surprised by the high payouts.

        Btw, do you follow Brad Thomas on Seeking Alpha? He covers REITs and writes some great articles. If you look at his analysis, it will give you an idea of how to evaluate REITs. He recently completed an analysis on HCP and pointed out some risks that I wasnt aware of. Still a worthwhile investment I think.
        Others great companies that you want to watch in the space are: VTR and HCN. There are pros and cons to each and picking the winner is the name of the game 🙂

        Best wishes
        R2R

    2. DivGuy

      I agree with you R2R! Definitely can’t analyze REIT the same way and this stock looks fairly valued to me as well. No real bargain so maybe I’d put it on watchlist too, but not a bad buy either.

    1. polliesdividend Post author

      Hello FFF,
      Thanks for stopping by, and taking the time to teach me something new!
      I really appreciate it!
      I’ll look into it!
      Lets hope for a dip in the near future 😃
      Cheers,
      Pollie

  2. DivHut

    This is a name that has been on my watch list for a long time. I like the health REIT space and have been eyeing HCP, VTR, OHI and LTC to a lesser extent. It’s definitely an industry with long term tailwinds at its back. Thanks for sharing.

  3. JC

    Well, looks like R2R already informed you about using AFFO. I like OHI and think it’s probably around fair value currently. I’m looking to purchase some shares at $39.50 or less. Doing a simple Gordon Growth Model calculation at $39.50 with the current annual dividend of $2.12 and a discount rate of 9%, OHI would only have to grow dividends at 3.5% to earn that return. So I’m pretty interested at current prices. If I keep typing I might even talk myself into buying some at a higher price.

    1. polliesdividend Post author

      Thnaks for your information.
      I appreciate it!

      A price of $39.50 will be nice 😀😢

      Today the price is going down.
      I hope it will go down a little more!

      Cheers, pollie

  4. Pingback: HCP Inc. (HCP) Stock Analysis Pollie Style | Polliesdividend

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