Payout ratio calculation and chart.
And given the underinvestment in SNF facilities over the past decade, demand for these facilities is expected to outpace supply in the coming decades.Finally, the third major factor to look at is Omega’s access to cheap capital. Omega Healthcare Investors, Inc. (OHI) Dividend Growth History: By month or year.
We view these as long-term headwinds that stronger operators should be able to manage given they are fairly well-telegraphed.”Source: Omega Healthcare Investor PresentationAt today’s price, investors have potential to achieve long-term annual total returns in excess of 10% (7.4% yield + 5% annual growth), assuming the company is not materially affected by regulatory changes (especially around reimbursement rates) and SNFs continue to capture a similar proportion of the aging senior population.While federal policy is still characterized by a healthy dose of uncertainty today, we believe new legislation will likely be relatively more incremental, phased in over a long period of time, and will not result in bankruptcies like those that occurred over 15 years ago.This kind of strong, long-term consistency is thanks to two protective factors.
Dividend.com: The #1 Source For Dividend Investing.
).With that said, legislative and regulatory changes, especially surrounding reimbursement amounts, can significantly impact the profitability of Omega’s somewhat-fragile tenants going forward.Several of Omega’s tenants are under financial pressure, which caused the company to place one of them (Orianna Health Systems) on a cash basis for accounting purposes after the operator continued missing its budget and failed to pay its monthly rent obligations.Omega Healthcare also placed a non-top 10 operator, Daybreak, on a cash basis in September due to a short-term liquidity crunch the company faced; however, Daybreak is expected to pay full rent starting in January and is not comparable to Orianna’s situation.Brain, another good analysis. Chart.
Since the REIT industry is highly commoditized, one of the only competitive advantages a REIT can have is a weighted average cost of capital (WACC) low enough to allow it to profitably grow.Given the legislative and regulatory murkiness in this space, it’s not a great surprise to see OHI’s stock looking “cheap.” While the company’s dividend appears to remain secure, investors considering Omega have to contend with an uncertain outlook over the medium-term.While some of these payments changes were reversed by subsequent legislation in 1999-2000, the result was a major reduction in payments made to nursing home operators.While Omega Healthcare appears to have a reasonable cushion to absorb some unfavorable developments, income investors still need to watch how these potential long-term headwinds play out over the coming years.More importantly, the fixed charge coverage ratio (Adjusted EBITDA over interest and preferred dividend payments) has been steadily rising for many years.I have just discovered your site and it is a goldmine of great analyses.Many of Omega’s tenants were forced to declare Chapter 11 bankruptcy and could no longer make their rent payments.
That helps explain the other protective factor, Omega’s strong balance sheet.Dividend Safety Scores range from 0 to 100, and conservative dividend investors should stick with firms that score at least 60. Combined with very long-term and staggered contracts, this gives Omega Healthcare a profitable and dependable source of recurring cash flow from which to fund its steadily growing payout.“The delay means the bill, if it does garner enough support, would likely undergo major changes.
Specifically this means that Omega is careful to only buy a new property, partly funded by the dilutionary sale of new shares, if the REIT’s AFFO per share will increase as a result, and thus allow for continued dividend growth.For example, if the Senate GOP version of the healthcare reform bill were to pass, Medicaid funding would likely fall, potentially hurting Omega’s senior housing tenants.Founded in 1992 in Hunt Valley, Maryland, Omega Healthcare Investors is America’s largest SNF and senior housing REIT, with 972 properties rented to 77 operators across America and the UK. As a Dividend Growth investor, the safety of my income stream is important to me.