Omega Healthcare: The Dividend Is At Risk

4/8/19

By Beyond Saving SA

Summary

  • Bulls have taken control of Omega Healthcare share price.
  • The company is expensive relative to its own history with weak fundamentals.
  • There are several contenders for which tenant is going to be an unpleasant surprise for Omega Healthcare. Genesis Healthcare is the largest.
  • Skilled nursing facility fundamentals continue to decline, and there is no reason to believe they will improve soon enough.

Co-produced with Rida Morwa of High Dividend Opportunities

It has been over a year and a half since I first wrote about Omega Healthcare Investors (OHI), determining that it was a value trap. In that article, I predicted that the company would slow or stop its dividend raises, but had confidence that it would not be reduced. Two quarters later, OHI froze its dividend increases.

Since then, its AFFO has dropped. The company missed its guidance of $3.42 in 2017, which came in at only $3.30/share. Then, in 2018, AFFO dropped to $3.04. For 2019, guidance is for AFFO of $3.00-3.12; if met, that would make the REIT's AFFO/share equivalent to its 2015 results.

Despite the drop in AFFO, OHI common shares have rebounded strongly.

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