Omega Healthcare Investors, Inc. offers investors solid growth and exceptionally strong income at a reasonable price.
Estimates have been rising after the company delivered better than expected third quarter results. It is a Zacks #2 Rank (Buy).
The company also pays a divdend that yields a stellar 7.9%. Valuation is attractive too, with shares trading at less than 11x forward earnings.
Omega Healthcare is a real estate investment trust (REIT) that provides financing and capital to the long-term healthcare industry across the United States.
The company owns or holds mortgages on 399 skilled nursing facilities, assisted living facilities and other specialty hospitals in 35 states, which are operated by 49 third-party healthcare companies.
It is headquartered in Hunt Valley, Maryland and has a market cap of $2.1 billion.
As a REIT, Omega Healthcare pays out the majority of its earnings to shareholders through dividends to avoid paying tax on that money. It currently yields a whopping 7.9%.
As you can see, the company has been steadily increasing its dividend over the last several years:
On January 13, the company announced an increase in its quarterly dividend to 41 cents per share. This marked the 6th dividend increase since early 2010.
Third Quarter Results
Omega Healthcare also reported better than expected results for the third quarter. Funds from operation (FFO) per share came in at 48 cents, beating the Zacks Consensus Estimate of 46 cents. It was a 9% increase over the same quarter in 2010.
Total revenue rose 4% to $72.8 million, ahead of the Zacks Consensus Estimate of $71.0 million. This was mostly driven by a 4% increase in rental income.
Total operating expenses declined from 53.1% of revenue to 40.4% due to lower general & administrative and depreciation expenses.
Analysts raised their estimates for 2012 following better than expected Q3 results. This sent the stock to a Zacks #2 Rank (Buy).
The Zacks Consensus Estimate for 2011 is $1.79, representing 8% growth over 2010. The 2012 consensus estimate is currently $1.95, corresponding with 9% FFO growth.
The valuation picture looks very reasonable for OHI. Shares trade at just 10.6x 12-month forward FFO, below the industry median of 13.6x and its historical median of 11.2x.
Its price to book ratio of 2.4 is in-line with its 5-year median.
The Bottom Line
With rising estimates, solid growth projections, a 7.9% dividend yield and reasonable valuation, Omega Healthcare offers investors attractive total return potential.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Co-Editor of the Reitmeister Value Investor.