Sunday, April 12, 2015

Recent Buy - Omega Healthcare Investors

     Perhaps the best aspect of being a dividend investor is watching dividends and distributions role in without any action on your part. Dividends added up in my RRSP over the past three months to the point where I had some cash to add to one of my growing positions last week; Omega Healthcare Investors ("OHI").
     For those of you unfamiliar with OHI, the company is a US-traded REIT which provides financing and capital to the long-term healthcare industry in the US with a focus on skilled nursing facilities. At the end of 2014, OHI's portfolio of investments included 560 healthcare facilities in 37 states. Omega is in the process of completing a $3B merger with Aviv in a deal that will result in a combined portfolio of 789 properties in 41 states. One big advantage of the Aviv/OHI merger is that the combined companies will leverage their existing 83 operator relationships to increase the number of acquisition opportunities.

     From a dividend growth perspective, OHI has the kind of track record that makes me salivate. In particular, for the past 11 consecutive quarters, Omega has increased their distribution. This translates to 5.9% dividend growth over the past 12-months. Even more impressive, the company has averaged an annual distribution growth of 13% over the past 5-years. For those of you who think all good things must come to an end, I'd point to the fact that in Q414, OHI's AFFO payout ratio was a perfectly healthy and very sustainable 73%, Even without the pending Aviv merger, there's still lots of room to grow the company's payout ratio.

     On Thursday, when the market sent down shares of all major US REITs, I was only too happy to purchase 30 shares of OHI at $39 and a distribution yield of 5.5%. One of my lessons learned through more active trading with a small portion of my portfolio last year was that it feels great to buy into quality companies on dips. Taking advantage of a 3% dip in OHI's share price gave me increased confidence to add to my position. Although I still haven't completed my position in the company, I'm inching closer, and felt good putting my capital back to work. My only complaint is that my discount broker, Scotia Itrade, charged me a ridiculous high exchange rate, only to increase it the next day when the trade settled. Even though I have their assurances that they're working on implementing a US dollar RRSP solution in 2015, I'm dangerously close to transferring my RRSP holdings away from Itrade, into a brokerage which would allow me to deal in US stocks at much fairer exchange terms.

     Although I'm not anticipating any more long-term buys in the immediate future, I continue to hold some cash in my TFSA and unregistered accounts earmarked for a good deal on Rogers, Royal Bank, Bell and TD Bank. Here's hoping Mr. Market gets depressed and irrational so that I can put more capital to work.

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