Stock Purchase – Omega Healthcare Investors (OHI)

As I mentioned in my previous post, “Stock Purchase: Union Pacific Corp (UNP),” I recently raised another $16k in cash from mutual fund sales in my 401k. This is part of an ongoing conversion of about 65% of my 401k to dividend growth stocks – which I am calling my Dividend Retirement portfolio.  I was hoping to slow my purchasing down a bit after UNP but I just couldn’t resist buying Omega Healthcare Investors (OHI) at current levels.  Here are the details of my purchase:

5/7/2015 – Omega Healthcare Investors (OHI)

  • Portfolio: Dividend Retirement
  • Shares purchased: 84
  • Cost per share: $35.5299
  • Commissions: $14.95
  • Cost basis: $2999.46
  • Yield: 6.05%
  • Expected annual income: $181.44

This holding is now my highest yielding stock providing me the most forward income.  I was quite pleased to pick it up at a yield on cost over 6%!  This purchase makes my portfolio a bit REIT heavy but I think this is normal for someone just establishing their portfolio.  Besides,  REITs are a steal right now!

 

OHI Company Overview

From the OHI website:

Omega Healthcare Investors, Inc. (NYSE:OHI) is a Real Estate Investment Trust (“REIT”) providing financing and capital to the long-term healthcare industry with a particular focus on skilled nursing facilities located in the United States.

As of April 1, 2015, after giving effect to the Aviv merger transaction, Omega has a portfolio of investments that includes over 900 properties located in 41 states and operated by 81 different operators.

As a source of capital to the healthcare industry, Omega continually evaluates the opportunities, trends and challenges affecting the industry. Our goal is to identify long-term investments in quality healthcare properties with outstanding operators that provide the most favorable risk/reward ratio to our investors.

 

OHI Performance

When I purchase a dividend growth stock, I typically like to give a detailed summary of a company’s financial strength.  Much to my benefit, most of this research and analysis has been covered very well by Ryan over at My Dividend Growth in his post, “Recent Purchase and Analysis of Omega Healthcare Investors (OHI).”  There are also several well written articles over at Seeking Alpha.  Therefore I will pass on the financial analysis this time and only talk briefly about the OHI dividends.

 

OHI Dividend Performance

The OHI dividend is one of the most attractive features of this dividend growth stock.  OHI has raised their dividend just about every quarter over the past 5 years with an annual growth rate over 10%.  This is exceptional for a stock that is already yielding over 6%.  If this dividend growth rate continues my yield on cost would be almost 9% in 5 years!

Their cash flow from operations has been rising steadily over the past 10 years

OHI data by GuruFocus.com

And although their free cash flow has fluctuated wildly, this is due to large investments (growth) and should actually help them cover future dividends.  In fact, their payout ratio has been decreasing every year since 2010.

 

Portfolio Impact

Adding 84 shares of OHI to my Dividend Retirement portfolio increases my portfolio yield on cost to 3.33% (from 3.08%), a very nice boost.  My forward annual income increased from $1019.40 to $1200.84.

 

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14 Responses

  1. Michael says:

    Nice purchase! I am currently looking into buying some OHI shares with some fresh capital…Thanks for sharing!
    LOMD

  2. Nice job here Ken. It looks like there were some large insider buys recently too including over $3 million @ just less than $36 a share. This is a very good sign to me, I wonder if we just saw the low. I’m secretly hoping we get a few more chances later this year. Great post and thanks for the mention!

    • Ken Ken says:

      Thanks Ryan. Ya I saw those insider buys and I agree it’s a good sign. If we’re at the bottom, great! If not I’ll double down. Thanks again for your thorough analysis.

  3. Blake says:

    Hi Ken,

    Good pickup here & great timing! I’m a fan (and owner) of OHI as well.

  4. Nice timing and a great purchase, DivEmpire.

    I already have a full position and am tempted to add more now that there is a pullback. But it would be prudent of me to buy one of the other healthcare REITs. Congrats on adding this fantastic company to your portfolio and adding $181 to your dividend income.

    cheers
    R2R

    • Ken Ken says:

      Thanks R2R – I enjoyed your OHI article over on Seeking Alpha. Any particular healthcare REIT you have your eyes on besides OHI?

      • Im looking to add a second one. Trying to decide between VTR, HCN and HCP. Something to like about each of them. VTR has a great div growth story going for itself (just behind OHI in the race for dividend raises) and the new spin off means unlocking of value and de-risking. HCN – I really like the geographical diversification with their large operations in UK. HCP – high yield play although they are going thru some troubled times now.

        What’s your take on the three mentioned?

        R2R

        • Ken Ken says:

          Thanks for the response. I actually haven’t done too much research on HCN and HCP, but now I’ll have to. VTR is currently my top pick for my Empire portfolio mainly for the reasons you mentioned and also because they have some built-in protection against rising interest rates (cost of living adjustments / annual rent increases).

  5. Great stock. OHI was the second stock I ever purchased. It has treated me well.

  6. Ken,

    Great company. Long-term tailwinds appear quite powerful. I’ve been a very happy shareholder thus far and hope to pick up some more shares sooner rather than later. Enjoy that dividend income!

    Best regards.

    • Dividend Empire Dividend Empire says:

      Thanks for commenting, DM. This is one of my favorite stocks right now. Definitely going to be an exciting one to watch over the next 20+ years.

      Ken

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