Omega Healthcare Investors' Healthy Dividend

NEW YORK (TheStreet) -- With all the publicity surrounding "Obamacare," here's one example of what I call "Investorcare:" Omega Healthcare Investors (OHI).

This real estate investment trust has raised its dividend for 11 years in a row, most recently in July by a whopping 12% over the previous year. If you bought the stock at $33 or lower that offers close to a 6% payout.

OHI provides financing and capital to the long-term health care industry with a particular focus on skilled nursing facilities located in the United States.

With over 5,000 baby-boomers turning 67 years of age every single day, this part of the health care industry is about to explode.

As of June 30, the company owned or held mortgages on 477 skilled nursing facilities, assisted living facilities and other specialty hospitals with approximately 55,075 licensed beds (52,890 available beds) located in 33 states and operated by 47 third-party health care operating companies.

It's like owning a health care company that indirectly serves our aging population while receiving recurring streams of abundant, dependable income consistent with mutual benefit and integrity.

According to the company, "Our goal is to identify long-term investments in quality health care properties with outstanding operators that provide the most favorable risk/reward ratio to our investors."

As the latest statistics from the U.S. Census Bureau indicate, about 16 million Americans are over the age of 80, and another nearly 30 million are between the ages of 65 and 80. To emphasize the growing numbers of likely folks to fill OHI's facilities, almost 22 million are in the "sweet spot" of 65 to 75 years old.

Many who analyze the growing numbers of Americans who will require special care in their senior years estimate that one in three baby boomers will spend time in an assisted living facility. There are currently over 70 million boomers in the U.S. alone.

The number of licensed care facilities is currently insufficient to meet the explosive demand that will increase with each passing year. Omega Healthcare Investors is well-situated to profit from this supply-demand dilemma, which continues to grow opportunistically.

Let's see a one-year chart of OHI and add a line for its trailing 12-month Ebitda earnings per share.

OHI Chart OHI data by YCharts

Those who have invested in the health care in general, as the one-year chart below of the Healthcare Select SectorSPDR ETF ( XLV) illustrates, should be feeling very well about how well the sector has performed.

XLV Chart XLV data by YCharts

In fact the XLV hit a 52-week high of $52.89 on Tuesday. If you had purchased shares of XLV in November 2012 at about $38 you have a lovely 39% profit to celebrate. (But you can't celebrate until you capture that gain, so it's time to tighten your trailing stop alert.)

Back on Oct. 2 OHI priced a follow-on public offering of 2.5 million shares of its common stock at $30 per share. Omega granted the underwriter a 30-day option to purchase up to 375,000 additional shares of its common stock.

Omega said it expects to use the proceeds for general corporate purposes, which may include funding the previously announced pending sale/leaseback transaction for 56 facilities currently operated by Ark Holding Company, Inc.

On Oct. 15, its Board of Directors declared a common stock dividend of 48 cents per share, increasing the quarterly common dividend by 1 cent per share over the previous quarter. The dividend is payable Nov. 15 to common stockholders of record as of the close of business on Oct. 31. So, my friends, it's not too late to get in on this dividend.

As of Oct. 15, Omega had approximately 119.5 million outstanding common shares. Its market cap is now above $3.9 billion

There's a tax-advantaged aspect to OHI's dividend as well. Due to its structure as a REIT, it was able to categorize some of its dividend as a return of capital. The rest is treated as ordinary income for tax purposes.

As long as you're able to hold onto shares of OHI, a portion of its payout (your dividend) will be tax-deferred. If you set up a dividend reinvestment plan (DRIP) through your brokerage firm it'll also add a dimension of compounding to your total return.

With a DRIP your dividends are reinvested in shares of OHI, which also can experience both a dividend yield and the possibility of price appreciation over time. Ask your brokerage to set your shares of OHI to "DRIP" every time they pay a dividend.

The Street expects OHI's funds from operations to grow 15% this year, which would be the fourth straight year of 15% to 18% growth. Sales grew 31%, 13% and 20% in the past three years, although next year that number may cool down to about 8%. That offers the chance for an upside surprise.

Omega Healthcare Investors and similar health care REITS such as HealthCareREIT ( HCN) have one major risk associated with them.

That would be the federal and state governments. Obamacare's rules and regulations involving reimbursements under Medicare, Medicaid as well as the Affordable Care Act are likely to evolve. Due to that possibility, those who subscribe to "Investorcare" may choose to limit their exposure.

Heck, from a demographic and historical standpoint, the government won't be spending less on health care facilities and assisted living accommodations for seniors in the years to come. If anything, it'll need to spend more as beds are quickly filled by swelling demand.

That's why I'd rather own these kinds of health care companies and buy more shares if a nice pullback happens. It literally pays (with the potential for compounding) to own stocks like OHI.

At the time of publication the author was long OHI.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

Marc Courtenay is the founder and owner of Advanced Investor Technologies, LLC, as well as the publisher and editor of www.ChecktheMarkets.com.

Courtenay holds a Master's of Science degree in Psychology from California Polytechnic State University, and is a former senior vice-president of Investments for two major brokerage firms. He's been a fiercely independent investment "investigator" and a consulting contributor to the investment publishing world for over 30 years. In addition to his role as an investment publisher and analyst, he serves as a marketing consultant to the investment media industries.

In his role as a financial editor, he specializes in unique investment strategies, overlooked stock investments, energy and resource companies, precious metals, emerging growth companies, the prudent use of option strategies,real estate related opportunities,wealth preservation, money-saving offers, risk management, tax issues, as well as "the psychology of investing". Because of his training and background in Clinical Counseling and Psychology, he enjoys writing about investor behavior, the ¿herd mentality, how to turn investment mistakes into investment breakthroughs and the stock market's behavioral trends and patterns.


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