Top Picks 2018: Omega Healthcare Industries (OHI)

01/04/2018 5:00 am EST

Focus: HEALTHCARE

Brett Owens

Chief Investment Strategist, BNK Invest, Inc.

Most dividend aristocrats gain their titles after a quarter-century – Omega Healthcare Industries (OHI) is making an accelerated case to be crowned in just six years’ time, explains Brett Owens, editor of Contrarian Outlook.

Omega Healthcare Industries (OHI) just raised its dividend for the 21st straight quarter. The stock now pays an amazing 9.4%. This is only the third time in the last ten years that OHI has paid this much. Each of the last two occasions were ideal times to buy.

Is this time different? A deadbeat operator is to blame (or thank) for the current sale. It’s so late on rent payments that OHI is exploring moving the operator’s properties to a better partner.

The rest of Omega Healthcare’s portfolio shows steady occupancy. Which indicates this is an operator-specific problem, and not a broader OHI problem.

The big picture for skilled nursing facility (SNF) demand looks great. The industry, which is actually seeing supply decrease as demand increases, is projected to be in a supply deficit within the decade.

And while investors fret about bad apple operators, they’re also missing the fact that total patient days at SNFs are increasing, and are projected to accelerate in the coming yearw.

Plus CEO Taylor Pickett and his team have managed these types of uncertainties successfully for his entire tenure (as evidenced by their stock’s amazing 5,000%+ returns over Taylor’s 16 years at the helm.)

This time last year, Pickett told Wall Street that his team will continue “to identify opportunities as less efficient and less sophisticated providers continue to exit the market.”

And earlier this year, OHI’s closest competition – Care Capital Properties (CCP) – announced its plan to merge with Sabra Healthcare (SBRA), with Sabra running the show.

In other words, CCP will no longer be calling the shots in its native SNF market. Pickett & Co. are free to cherry pick the best SNF properties in an otherwise fragmented industry. That’s another reason why OHI is such a great buy today.

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