The company is in the business of financing and owning property associated with long-term care facilities. It operates primarily in the United States and the United Kingdom, and its business line is well-positioned for the demographic shifts affecting both countries.
In both the United States and the United Kingdom, the portion of the population that is older adults is increasing, an artifact of both lowered birthrates and decent medical care. That bodes well for the future of the long-term care industry, for two reasons.
First, older adults tend to be those in the most need of long-term care services, as to qualify for the care, you generally need to be unable to take care of yourself. That will often happen to people near the final years of their lives as their physical and/or mental abilities stop being as strong as they used to be.
Second, when not provided professionally, the responsibility for caring for aging adults typically falls on their children. Families having fewer children mean that itâs less likely that one of those children will have the ability and/or willingness to care for those parents as they age. That makes it more likely that professional services â like those provided at Omega Healthcare Investorsâ facilities âwill be needed.
The company also has a decent balance sheet to support it along the way
Of course, the best way to profit from that aging population to be in business long enough to adequately service the population that will need long-term care. On that front, Omega Healthcare Investors is setting itself up to have a decent chance of success.
Most importantly, it has a reasonably healthy balance sheet, with a debt to equity ratio below 1.5 and a current ratio around 0.9 . That debt to equity ratio is about the corporate equivalent to having a $150,000 mortgage on a house worth $250,000. Thatâs a low enough debt load relative to the value of its assets so that when the companyâs debts mature, it is likely that it will find a financier willing to roll them into reasonable new terms.
The current ratio of 0.9 means that it can cover around 90% of its major financial obligations coming due in the next year from the short-term assets on its balance sheet. That bodes well for the companyâs ability to cover its costs in the near term even if a rough economy makes it difficult for the operators of its facilities to pay their bills to Omega Healthcare Investors.
This is important because at least some of those operators have run into their own financial difficulty. The more solid Omega Healthcare Investorsâ own balance sheet is, the better its chances are of making it through any short term difficulties its clients may have.
On that front, a deeper dive into its dividend shows how Omega Healthcare Investors is managing through those client challenges. The company offers its shareholders a hefty dividend for the risks theyâre taking by owning the companyâs stock, at $0.67 per share per quarter. That works out to a yield of around 8.6% based on the companyâs recent price of $31.11 per share.
Despite that fairly hefty dividend, the payment hasnât increased since 2019, and it currently consumes a little bit more than the entirety of its operating cash flows. It is very unlikely that the company will increase that dividend until it completely works through those challenges with its operators.
Still, the fact that it has been able to maintain its dividend with those challenges happening is a testament to the power of its solid balance sheet to see it through these rough times.
Get paid for your patience
As a US based Real Estate Investment Trust (REIT), Omega Healthcare Investors must pay out at least 90% of its earnings in the form of dividends . That means that even if it does eventually have to cut its payment, it is likely that investors will see a fairly decent yield, as long as its business remains profitable.
With demographics trends being what they are, it is very likely that its long-term future is solid, giving its balance sheet room to help protect the dividend during some short-term challenges. For patient investors, Omega Healthcare Investorâs current dividend, decent balance sheet, and REIT status means youâll likely get paid decently now to wait for a potentially much stronger long term future.
At the time of publication, Chuck Saletta had the following options positions in Omega Healthcare Investors: Short Sep. 2023 $31 Calls, Short Jan 2024 $20 Puts, Short Jan 2024 $32 Puts, Long Jan 2025 $28 Calls. At the time of publication, Chuck also owned Omega Healthcare Investors bonds maturing in April 2027, January 2028, and October 2029.
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Sources â EasyResearch, Omegahealthcare, Census, Conservatives, Paying for Senior Care, Yahoo Finance, Investopedia, Reuters, SEC
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