Low Beta Boosts Omega

03/06/2020 5:00 am EST

Focus: REITS

Brett Owens

Chief Investment Strategist, BNK Invest, Inc.

What are the hallmarks of a resilient high-yield dividend play? Here are three telltale signs I always look for, explains Brett Owens, growth and income expert and editor of Contrarian Outlook.

* A history of holding firm in past downturns. It’s obvious: if a stock held its own in the last pullback, odds are it will outperform in the current one.

* A high—and rising—dividend. Big payouts tend to get investors’ attention in times like these, when the first-level crowd is going all in on pathetic payers like Treasuries. A growing 7%+ payout looks great compared to the 1.3% the 10-year is currently dribbling out.

* A low “beta”: Beta ratings sound like a shadowy technical indicator with no value to us conservative dividend investors, but that’s false.

Beta—measured over five years on most stock screeners—is an important volatility measure. It’s simple: a beta of 1 means a stock tends to move in tandem with the S&P 500. Below 1: less volatile. Above 1: more volatile. For pullback-resistant buys, I look for a beta of 0.5 or less.

Let’s look at Omega Healthcare Investors (OHI), a real estate investment trust (REIT) with investments in 950 senior-care facilities, almost all of which are in the US.

Let’s start with point No. 1, strong performance in the last downturn. Check! In the late 2018 wipeout, which ran from September 20 of that year to Christmas Eve, OHI investors made money; we bagged a 4.9% total return in that three-month period, while the broader market returned negative 19%.

So, it probably comes as no surprise that OHI is holding up nicely again in 2020 — while its shareholders continued to benefit from its 6.2% dividend.

The key takeaway here is that OHI’s dividend has grown, and a rising payout acts like a magnet, pulling a company’s stock up with it.

Finally, OHI ticks the last of our three boxes: a low beta, at just 0.39, meaning the stock is less than half as volatile as the S&P 500. This is one of the best testaments to the ability of a high (and rising) payout to stabilize your portfolio that I’ve ever seen!

The payout grew over the last decade, it pulled up the share price and made the stock steadier: OHI’s beta rating fell by 62%. Put it all together, and OHI has been the definition of a pullback-resistant dividend — in the long haul and the short.

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