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Omega Healthcare Investors Inc (OHI) Stock Could Be a Better Deal Today Than Five Years Ago

Omega Healthcare Investors Inc (NYSE:OHI) is the largest real estate investment trust in the U.S. investing almost exclusively (85% of its portfolio) in the property leased by skilled nursing facilities. In the current healthcare political climate, OHI stock has had a bumpy year.

Omega Healthcare Investors Inc (NYSE:OHI)
Source: Shutterstock

Healthcare stocks, whether helped or hindered by the Republicans’ desire to repeal and replace the Affordable Health Care Act, are volatile these days as investors try to figure out the winners and the losers. Although OHI stock is up 14.4% year to date through June 28, it hasn’t been a smooth ride. On several occasions in 2017, Omega’s stock’s risen above $34 only to fall back toward $30. As I write this, it’s down over 4% on the day on higher than usual volume.’s James Brumley recently praised the healthcare REIT’s dividend as “reliable and a consistent grower,” pointing out that OHI is the ninth-best performing REIT of any kind over the past 10 years.“Like any other stock or REIT out there, Omega Healthcare is going to ebb and flow, and at times be a little scary,” Brumley wrote on June 13. “For a true long-term investor who can leave it alone though, OHI is one of the top REITs out there, addressing a market that’s not going to go away.”

Brumley’s assessment is right on the money.

Understanding What You’re Buying

These types of facilities might not spring up on every street corner, but the demand for them is not going to go away. It’s for this reason many investors are attracted to Omega Healthcare and its current 7.6% dividend yield.Although REIT investors are accustomed to yields higher than your average dividend-paying stock, when they get to 8%, it’s only natural to wonder why.

When a $20 stock paying $1 in annual dividends thus yielding 5% drops to $10 and now yields 10%, sometimes the drop happens for obvious reasons. Perhaps the company lost a major customer or had bad earnings; sometimes it’s a stock that’s simply gone out of favor with investors but remains a quality business.


You never know for certain whether you’re getting a quality 8% or a vulnerable 8%. In the case of Omega Healthcare, I think it’s the former. Here’s why.

FFO and the Bottomline on OHI Stock

A standard number REIT investors use to evaluate a company’s operating performance is funds from operations (FFO), which is loosely defined as GAAP net income less any gain or loss on the sale of a property plus depreciation and amortization, after accounting for unconsolidated partnerships and joint ventures. Adopted by the National Association of Real Estate Investment Trusts in 1991 and amended several times since; most REITs including Omega Healthcare follow this definition.

A good way to quickly evaluate whether you’re buying a cheap REIT stock or an expensive one is to look at its market cap as a multiple of FFO. The higher the multiple, the less likely you’re getting a bargain. Here’s what Omega Healthcare’s Market Cap/FFO looks like over the past five years.


Market Cap

Market Cap/FFO





















Sources: Morningstar and

Those market cap figures are for the end of each calendar year. Omega’s current market cap as of June 28 is $6.6 billion or 10 times its fiscal 2016 FFO. So, even with $600 million in additional market cap, its FFO multiple is still lower than it’s been in the past five years.

Its Q1 2017 FFO was $181.0 million.

Annualized that’s $724.0 million or 9.7% higher than in 2016. The company’s outlook for FFO in 2017 is between $3.26 and $3.30 per share. Based on 236 million shares outstanding (its share count’s increased by 17% annually over the past four years), its FFO on a dollar amount basis would be $769.3 million for a forward FFO multiple of 8.6.

I have to go with my colleague, James Brumley. Omega Healthcare appears to be one of the best REITs out there.

As of this writing, Will Ashworth did not hold a position in any of the aforementioned securities.

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