A Super-Safe 7.2% Payout

 
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A Safe 7.2% Yield

Marc Lichtenfeld, Chief Income Strategist, The Oxford Club

Marc Lichtenfeld

While the demographics are strongly in its favor, the nursing home business isn't always the easiest, even in a non-COVID-19 world.

Regulations seem to change daily, many of the homes are at the mercy of Medicare for reimbursement and qualified labor is hard to find.

So despite 10,000 baby boomers turning 65 every day, investing in a nursing home is not a slam dunk.

I do like, however, the business of being a landlord to assisted living facilities like nursing homes.

If a nursing home intends to keep its doors open, it must pay its rent, plain and simple.

Omega Healthcare Investors (NYSE: OHI) owns the real estate for 957 assisted living facilities in 40 states plus one facility in the U.K.

It is a real estate investment trust (REIT). As a result, its funds from operations (FFO) is a more important metric to look at rather than earnings or cash flow.

The company's FFO hasn't been particularly impressive over the past few years, though it is rebounding strongly from dips in 2017 and 2018.

Chart - Omega Healthcare Investors' FFO
 

Last year, Omega generated $640 million in FFO and paid shareholders $564 million in dividends for a payout ratio of 88%.

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This year, the company is forecast to report $649 million in FFO and pay $608 million in dividends, which equals a 94% payout ratio.

REITs must pay out 90% or more of their earnings. As a result, most pay dividends equal to most or even all of their FFO. So a payout ratio that high doesn't bother me.

If it were more than 100%, it would receive a penalty from SafetyNet Pro. As long as it's under 100%, it's fine.

What Is SafetyNet Pro?
SafetyNet Pro is a groundbreaking tool that predicts dividend cuts with stunning accuracy. With it, you can determine the dividend safety rating of nearly 1,000 stocks. Access to SafetyNet Pro is reserved exclusively for subscribers of Marc's newsletter, The Oxford Income Letter. To learn more about SafetyNet Pro and The Oxford Income Letter, click here now.
 

Omega Healthcare Investors has a strong dividend-raising track record, paying shareholders more dividends every year since 2004.

The fact that the company raised the dividend even when FFO fell a few years ago gives me added confidence that the dividend is safe.

With the dividend at $0.67 per share quarterly, the yield comes out to 7.2%. A yield like that - particularly one that is not in jeopardy - is not easy to find in this market.

The nursing home business might not always be consistent. But Omega Healthcare Investors' dividend sure is.

Dividend Safety Rating: A

Dividend Grade Guide
 

If you have a stock whose dividend you'd like me to analyze in this column, leave the ticker symbol in the comments section.

You can also use the search box below to see whether I've written about a stock before. Simply type in the company name to get started.

Good investing,

Marc

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