OHI Stock: A Benefit to Dividend Investors
When it comes to dividend investors, the goal is usually to find the highest yield possible. A common source of high yields is real estate investment trusts (REITs).
REITs are a strong choice because there is not a lot of risk in the business model, thanks to the stable cash flow from the business’ operations. Another advantage of REIT investing is that there are many properties in the portfolio, adding diversification.
Omega Healthcare Investors Inc (NYSE:OHI) stock would be classified as a high-yield company with a diversified portfolio of assets. The yield is 8.09%, with a current trading price of $30.15. The dividend is paid on a quarterly basis in the amount of $0.60 per share. Over the past six years, the dividend has seen an increase.
There are currently more than 1,000 locations operated by Omega Healthcare in 42 states. The assets are primarily focused on the healthcare industry–more specifically, long-term healthcare facilities for seniors.
The Numbers
Businesses in the REIT sector are known for having debt on the balance sheet in order to grow the business. The main factor for investors to consider is if the debt is manageable and will allow for continued growth of the business.
A great metric for gauging this is the earnings before interest, tax, depreciation and amortization (EBITDA)-to-interest coverage expense ratio. The current ratio for OHI stock is 4.2 times, which means that for each dollar of interest debt that is incurred, $4.2 is being earned from the business operations. Therefore, with enough funds to cover the interest portion of the debt, there are more opportunities for Omega Healthcare to create a stronger balance sheet by reducing the debt.
There are also opportunities for the company to continue to grow the business going forward. Over the past five years, revenue has increased 150%.
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The focus on senior living facilities will prove beneficial, thanks to the anticipated increase in demand in the U.S. According to the U.S. Census Bureau, seniors over the age of 65 currently account for approximately 15% of the economy, with this number expected to grow to over 25% by 2060. (Source: “Projections of the Size and Composition of the U.S. Population: 2014 to 2060,” U.S. Census Bureau, March 2015.)
In addition, with more demand at senior facilities comes the likelihood of more family members visiting the facilities to spend quality time with their relatives. This is worth mentioning because the next generation is expected to receive a large wealth transfer of $30.0 trillion from estate planning. (Source: “Great wealth transfer will be $30 trillion—yes, that’s trillion with a T,” CNBC, July 22, 2014.)
Also worth noting is that family members who visit their relatives will be getting an indirect tour of the facilities. That means that when thinking of their own retirement, Omega Healthcare facilities will likely be the first that come to mind.
Final Thoughts on OHI Stock
For dividend investors, OHI stock can be a potentially a great stock to own. Omega Healthcare is a company with a unique set of assets.
With the shift in the U.S. population, there should be increased demand for the company’s services. Shareholders could stand to profit, as this would mean a possible chance of further dividend hikes.
Also Read:
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Best 3 Healthcare ETFs to Invest in 2017