Omega Healthcare Investors (OHI) — a three-decades-old owner of skilled nursing facilities in the US — has been through a rough patch ever since the onset of COVID-19 in 2020, recalls Todd Shaver, editor of Bull Market Report.

The company released its first quarter results a month ago, reporting $185 million in revenues, down 13% YoY, compared to $210 million a year ago. It posted a profit or funds from operations (FFO) of $160 million, or $0.66 per share, down from $180 million, or $0.74 per share in FFOs during the same period last year.

The beaten-down stock has since been offering yields of nearly 9%, which has led a few analysts to write it off as being too risky. However, recent performances strongly point to the company emerging from the tunnel, making it an opportune time to lock in these sky-high yields.

This healthcare REIT owns 905 skilled nursing facilities and assisted living facilities with 90,000 beds in the US and the UK. They deal with 65 different regional and national healthcare providers, all of which are leased out via a triple-net lease whereby the operator has the risk of inflation and other unforeseen expenses. Smart move.

A number of the company’s leading operators have resumed paying their full contractual rents after months of deferrals, along with interest on the outstanding amounts. This clearly points to an industry in recovery, following a tough period during the pandemic, with heightened expenses and low occupancies. The rent coverage ratio stands at 1.09x, up from 0.83x during the third quarter of 2022.

The past quarter was eventful, with $26 million in acquisitions, $18 million in dispositions, and $11 million in renovation projects. The dividend payout ratio was at 112% during the quarter, which is unsustainable, but earnings will improve in the coming quarters, bringing it well within range.

Omega Healthcare offers substantial value at current levels, with strong winds in its sails going forward, resulting from an aging population, and a moratorium on the Certificate of Need restrictions, which will push occupancies through the roof going forward.

Add to this, it maintains a strong balance sheet, with $250 million in cash, $5.3 billion in debt, and $600 million in cash flow. Meanwhile, enjoy the 9% dividend while you watch the stock recover to its historic price level in the mid-$30s.

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