Tuesday April 17, 2012
by Mark Skousen, editor High-Income Alert
I see the recent market downturn as an opportunity to pick up some great investments at even better prices.A good example is Omega Heathcare Investors (OHI).
Based in Hunt Valley, Md., the organization is a real estate investment trust (REIT) that provides financing and capital to the long-term healthcare industry, especially skilled nursing facilities.
The company owns or holds mortgages on more than 400 assisted living facilities, nursing homes and specialty hospitals in 35 states.
A REIT must pay out at least 90% of its net cash flow in the form of dividends. So, we get an attractive yield here of 8%. And not only is the yield sustainable, it should grow substantially from here.
For the past five years, Omega has boosted its dividend an average of 10% per year. That’s five times the rate of the average healthcare REIT.
Some observers will argue that with Medicare reform ahead, a healthcare REIT isn’t a good place to invest. I disagree.
With the population greying -- and living longer -- nursing homes and assisted living facilities are going to see a steady influx of business in the years ahead.
One person who agrees with me is the outstanding contrarian investor David Dreman. He owns more than 1 million shares of Omega Healthcare in his DWS Dreman Small-Cap Value Fund (KDSAX).
Why does this market-beating manager own the stock? Only Dreman can say. But note that quarterly earnings at Omega are up 288% on a 13% increase in revenue.
Operating margins top 56%. And the company is in the midst of a $100-million stock buyback program. As a result, now is a good time to take advantage of this low share price and high yield.
So, buy Omega Healthcare Investors at market. And place a protective stop at $16. If you prefer to play this one more aggressively, try the June $20 calls.
Learn more about this financial newsletter at Mark Skousen's High-Income Alert.