NOTE: Moved from the REIT to Senior Growth Strategies portfolio 8.13.25.

Coverage initiated March 22, 2016
Updated May 4, 2018
NOTE: Current Target and Sell Prices are displayed in the Portfolio. Type the TICKER SYMBOL or COMPANY NAME into the search box (top of page) for all Bull Market Report coverage of any given stock.

Fundamentals and Company Overview
Omega Healthcare Investors is a real estate investment trust (REIT) that leases space to nursing facilities and assisted living facilities, with over 900 properties in 42 states and the United Kingdom. The company has been in operation since 1992 and went public in 2004. Since then, dividends have risen consistently as its operations have expanded.

The company’s exposure to the aging American market has made it a REIT favorite for over a decade, but in the last few years investor enthusiasm has softened. There are two reasons for this. For one, Omega Healthcare has seen a slight decline in occupancy rates, falling about 2% between 2009 and now. Granted, occupancy is still 82%, but every empty bed hurts. Secondly, the company has seen acquisitions become more expensive as a result of the booming commercial real estate market, making competition for properties harder to acquire. While this does theoretically help the company’s balance sheet and position it to profit from selling properties it owns if it chooses, it also means expanding operations at a higher cap rate has become much harder (which is necessary to fund the company’s dividend.)

Seeing this, the market has sold off the company as well as healthcare REIT competitors. The stock is down 15% from its mid-2016 high, but there are significant reasons to believe this is discounting a fundamentally valuable REIT and providing a great buying opportunity for a long-term high income stream that will likely grow in the coming years.

Fund From Operations (TTM FFO).  A quick look at Omega Healthcare compared to its peers makes it clear that the stock is oversold. This hypothesis is confirmed when we look at the company’s strong history of growing adjusted funds from operations (FFO). Not only has the company been receiving more income from tenants, but the rate of compression on the bottom line has leveled off. Omega is unlikely to report less than $2.99 per share in FFO this year, which is more than enough to pay a $2.64 dividend.

With a relatively lean balance sheet, Omega Healthcare is in a strong position to acquire more properties and increase FFO when market conditions permit. As CEO Taylor Pickett said on a recent earnings call: “We evaluate our capital costs and our related acquisition opportunities weekly. Given our current cost of capital and leverage, we have sufficient capital to support our operators’ near-term capital needs."

Dividend Sustainability and Growth
Thanks to the company's recent challenges, dividend payout ratios have climbed to 90% of FFO. Nonetheless, with FFO hitting the lower limit this year, the payout ratio should relax from here on out. The company’s ability to cover dividends from income has a long history.

Looking at Omega’s payout history a dividend increase in the future is likely. But how high will the dividend go?

To look at the future potential dividend, we first need to look at the past. Dividend growth has averaged around 9% over the last four years but slowed a bit in 2015. For now, what's currently a 10% yield looks safe. Lock it in while you can.