Why Omega Healthcare Investors is a retiree’s dream title
Especially in today’s environment where they face both low interest rates and rising inflation, retirees face a serious risk when it comes to covering their costs. The longer they hope to live in retirement, the more difficult the barrier that this combination creates for them to pay their bills.
Despite their volatility and potential for overvaluation from time to time, stocks offer retirees one of their best hopes of earning a total return high enough to keep up with after-tax inflation. Still, no stock will do. Many retirees ideally want a combination of current income, potential income growth, and a strategic reason to believe that these trends can continue. This combination puts Omega Healthcare Investors (NYSE: OHI) vying to potentially be a retiree’s dream stock.
What does it do?
Omega Healthcare Investors is a real estate investment trust (REIT) that focuses on nursing homes and assisted living facilities. As the U.S. population ages and people continue to have smaller families, these demographic trends indicate continued demand for nursing homes and assisted living facilities for a long time. After all, children often play an important role in caring for their aging parents, and if people have fewer children, professional help is more likely to be needed sooner.
In addition to these long-term trends, Omega Healthcare Investors have just survived what must have been one of the most difficult years in a long time for its industry. After all, the COVID-19 pandemic has hit residents and staff of nursing homes particularly hard. The fact that the company has managed to maintain its dividend throughout the pandemic is a testament to its underlying financial strength today.
Especially since vaccines have become commonplace, Omega Healthcare Investors has reported a significant drop in COVID-19 cases at its facilities. This strongly suggests that the worst could very well be behind the pandemic. It should also make people feel more comfortable in and around nursing homes, which bodes well for her path to normalcy and recovery.
About his financial data
Omega Healthcare Investors has a good history of paying and increasing its dividend. While it has maintained – rather than increased – this payment throughout the pandemic, only about 24% of that dividend was a return of capital in 2020, up only slightly from 22% in 2019. This suggests that its cash generation remained remarkably strong even though it was the worst of the pandemic.
This dividend also provides a strong current payout. At $ 0.67 per share per quarter, its dividend represents a 7.4% return to the company’s recent share price of $ 36.11. As a real estate investment trust, Omega Healthcare Investors must pay at least 90% of its profits as a dividend. With this profile, it is likely that the company will retain a significant dividend as long as its operations support it. Moreover, as the company recovers from the pandemic, it could also resume its dividend increases.
On top of that, the company’s debt-to-equity ratio is at a reasonable level of 1.3 and its current ratio is above 1.0. The current ratio above 1.0 means he will likely have enough money to cover his short-term bills as they fall due, even if his income continues to suffer. The debt-to-equity ratio is roughly the equivalent of a $ 130,000 mortgage on a house worth about $ 230,000. He says the company should be able to manage its debt as long as its business remains strong.
The combination adds up
With demographic trends favoring its long-term business, retirees have good reason to believe that Omega Healthcare Investors can thrive in the future. With a balance sheet and operations that have enabled it to weather a pandemic that has hit its market particularly hard, these same retirees have good reason to believe that they can survive in the long term. With a large dividend that had risen before the pandemic, retirees can get a decent income stream with the potential to grow as well.
This combination adds up to a business that has a very good chance of being a retiree’s dream stock. For the sake of portfolio diversification, it certainly shouldn’t be the only stock in a retiree’s portfolio. Still, it’s worth considering a place in the equity portion of a retirement portfolio to help savvy retirees attempt to fight the long-term ravages of inflation.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.