We're sharing this Private Briefing with you because it's quite simply the perfect opportunity for these market conditions. To claim your 50% Member discount, and get all of Bill's Private Briefing recommendations for any and every market, click here. Now here's Bill...
In journalism circles, there's an axiom that tells writers that it's usually better to "show" than to "tell."
It's a nifty bit of wisdom that I've shared with dozens of young writers through the years.
In this Private Briefing report, I'm taking my own advice.
Yesterday, we told you that that high-yielding dividend stocks were one of the best ways to navigate this whipsaw market.
Today we're going to show you just how powerful one particular dividend play can be.
Capital Wave Forecast Editor Shah Gilani told us that solid companies with strong cash flows and consistent dividend payouts head his "Buy" list right now.
"If someone came to me and asked me what to start buying right now, I'd tell them to look at solid companies with strong dividend yields - especially those that you know are going to continue paying those dividends," Shah told me. "It doesn't end there, though. You only want to buy stocks that you'd be willing to add to - to buy more of - if prices were to fall. That's how you have to look at this market: If you're going to buy, you want to buy at lower and lower prices. You actually hope it goes lower so that you can buy more. And because of the strong dividend angle, as these stocks fall in price, the yield goes higher."
There's one stock in particular that hits all these goals.
And you know it well.
I'm talking about Omega Healthcare Investors Inc. (NYSE: OHI), a healthcare-focused real-estate investment trust (REIT) with a 5.5% yield and a history of quarterly dividend increases.
We first told you about you about Omega back in September 2012, and the stock has surged 59.8% since then. If you add in the $3.80 a share in dividends that was available along the way, the total return spikes to 76.2%.
If you're new to Private Briefing - or didn't buy the stock any of the times we've recommended it - don't feel that you missed the ride. Thanks to the underlying dividend story, this is one of those rare stocks for which there's almost no "wrong" time to snap up shares.
Let me tell first tell you a bit about the company. And then we'll run some numbers together.
By the time we're finished, I'm betting this will be one of those rare "math lessons" you'll look back on with a smile.
Or maybe even a greedy grin.
With its corporate headquarters in Hunt Valley, Md., Omega is actually based not far from the Money Map Press offices here in downtown Baltimore. Thanks to that proximity, several of us here have followed the company for several years and know its business model well.
The REIT invests in income-producing healthcare facilities in the U.S. market - with a special focus on long-term care operations. In other words, OHI provides leases or mortgage financing to operators of skilled nursing facilities (SNFs), assisted living facilities (ALFs), independent living facilities and rehabilitation and acute care facilities.
The target market for Omega is a great one - America's senior citizens, a group that's ballooning in number. The last time I checked, the number of Americans aged 85 and older was projected to zoom from about 2% of the nation's population in 2010 to roughly 5% in 2050. In real numbers, that means Omega's base of possible customers is soaring from about 6 million to a projected 21 million.
At the 2014 midpoint, Omega Healthcare owned or held mortgages on 563 skilled nursing facilities, assisted living facilities and other specialty hospitals with approximately 63,733 licensed beds (61,353 available beds) located in 37 states and operated by 49 third-party healthcare operating companies.
OHI does not primarily invest in mortgages. It instead chooses to buy the real estate and leases it on a long-term basis to the healthcare operator - who then takes the operating risk, including the sometimes tricky Medicare reimbursements.
This approach generates a lower up-front yield than mortgage investment. However, the leases are written with an "escalator" clause for inflation, and Omega Healthcare remains the owner of the property itself, which means the yield on OHI's investments tends to rise with inflation.
It's this shrewd strategy that allows Omega to maintain such an aggressive payout policy.
As a REIT, Omega Healthcare is able to pay out a high percentage of its cash flow as dividends. And it boosts those payouts at a consistent, predictable rate. The result: one of the most powerful dividend stories you'll find anywhere.
And the numbers we're about to work through with you will prove it.
When I recommended the company to Private Briefing readers at $23.26 a share back in 2012, the annual dividend payout was $1.69 - for a yield of 7.26%.
Since then, Omega Healthcare has boosted its dividend at a steady rate of about a penny a quarter. That's actually much more than it appears.
Using that pattern, here are the past payouts - as well as what we're projecting should Omega continue along its expected path:
$1.69 (2012)
$1.86 (2013)
$2.02 (2014)
$2.18 (2015 projected).
$2.34 (2016 projected)
$2.50 (2017 projected)
$2.66 (2018 projected)
Let's look at this in a couple of ways.
And let's start with the 2014 dividend payout of $2.02 a share.
If you bought the stock when we recommended it back in 2012 and held it through to yesterday when it closed at $37.18, that $2.02-a-share payout would mean the current yield on your original purchase price would be 8.68%.
And the story gets better.
Fast-forward to 2018, when the current pattern dividend increases would take the payout to $2.66 a share. At that point, the yield on your original outlay would be 11.44%.
Even if you bought the stock right now, at $37.18, the yield on your purchase price would go from the current of 5.49% to 7.2%.
And look at the "total-return" dynamic - again assuming the company continues its pattern of payout increases.
If you bought the stock at our original recommendation price of $23.26 a share and held it through the end of 2018, you'd collect a total of $14 a share in dividends (the final dividend for 2012, and all the annual payouts that followed).
As I said before, the stock has already gained 59.8% to reach $37.18. But even if the share price were to stall - meaning it just continues to trade where it's trading today - those dividends would effectively take the price up to $51.18 - for a "total return" of 120%.
In other words, if all our assumptions were to hold, if you'd purchased the stock when we first recommended it, and held it until the end of 2018, you'd be sitting on a 120% total return - and would be earning 11.44% on your original outlay.
All from a "boring" dividend stock.
And as our next scenario demonstrates, you can still get a "big bang" out of this stock by adding it today.
If you buy Omega now, at $37.18, and held it until the end of 2018, you'd collect $7.70 a share in dividends. Even if the stock just treads water from here, the dividends you collected would take the "effective" price to $44.88, for a 21% return.
And as we said earlier, you'd still be earning 7.2% on your original outlay.
And the odds are good the stock price won't just stay where it is. The current "high-water" target price on Omega Healthcare is $41 a share.
But if we assume the stock keeps its current 5.5% yield, our projected $2.66-a-share dividend for 2018 projects to a trading share price of $48.36. (In other words, at that higher payout, for the stock to still yield the same 5.5% it does today, the market price - where it actually trades - would have to rise to $48.36.)
For the stock to do that from current levels, we'd be looking at a gain of 30%. Add in the $7.70 worth of collected dividends and you're talking about an "effective" share price (market price plus collected dividends per share) of $56.06 - for a total return of 50.8%.
Even at the "market" yield of 5.5%, you'd still be earning 7.2% on your original outlay.
Before we close out today's Private Briefing report, let's use that new end-of-2018 "projected" share price for Omega Healthcare to take one final look at our original September 2012 recommendation.
At that price of $48.36 a share, we'd be talking about a capital gain of 107.9%. Add in the $14 a share in collected dividends and you're talking about total return of 268%.
And you'd still be earning 11.44% on your original outlay.
With an income strategy like this one, we've showed you how to kick the current market sell-off right in the teeth.
But don't tell anyone else how you did it - the payoff will continue for years.
More from Bill...
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