Company Description: Omega Healthcare Investors Inc. is a real estate investment trust (REIT) that invests in income-producing healthcare facilities, mainly long-term care facilities located in the United States.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
PFE is trading at a discount to only 3.) above. Since PFE's tangible book value is not meaningful, a Graham number can not be calculated. When also considering the NPV MMA Differential, the stock is trading at a 28.0% premium to its calculated fair value of $30.65. PFE did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
OHI earned one Star in this section for 3.) above. OHI earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 2003 and has increased its dividend payments for 17 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
The NPV MMA Diff. of the $1,650 is below the $1,800 target I look for in a stock that has increased dividends as long as OHI has. The stock's current yield of 6.3% exceeds the 2.74% estimated 20-year average MMA rate.
Peers: The company’s peer group includes: Healthcare Realty Trust Incorporated (HR) with a 3.6% yield and Ventas, Inc. (VTR) with a 5.5%.
Conclusion: OHI did not earn any Stars in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a total of one Star. This quantitatively ranks OHI as a 1-Star Very Weak stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to decrease to $40.96 before OHI's NPV MMA Differential increased to the $1,800 minimum that I look for in a stock with 17 years of consecutive dividend increases. At that price the stock would yield 6.5%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,800 NPV MMA Differential, the calculated rate is 1.9%. This dividend growth rate is higher than the 1.5% used in this analysis, thus providing no margin of safety. OHI has a risk rating of 2.0 which classifies it as a High risk stock.
The stock is currently trading above my calculated fair value of $38.14. As a REIT OHI is required by law to pay out 90% of its earnings. Unfortunately, its Free Cash Flow payout is 109% (down from 111%). This has been one of my favorite REITs over the years. However, I will wait for its Free Cash Flow to improve adding to my position.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Full Disclosure: At the time of this writing, I was long in OHI (0.8% of my Dividend Growth Portfolio). See a list of all my Dividend Growth Portfolio holdings here.
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Tags: OHI, HCP, HR, VTR,
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