12-17-2013, 04:27 PM
See my blogpost here at http://dividenddream.blogspot.nl/.
I am planning to make a purchase next week. Since I currently don't have any REIT exposure in my stock portfolio, I would like to add some using fresh capital. Especially considering the recent correction in stock prices due to worries about tapering and rising interest rates, this might be a good time to start a position.
Real Estate Investment Trusts
The REIT universe is quite but but I narrowed it down. I am considering two companies at the moment: Realty Income (O) and Omega Healthcare Investors (OHI). Although these companies are active in a different segment, their business is more or less the same. Realty Income is an equity real estate investment trust (REIT). O is engaged in acquiring and owning freestanding retail and other properties that generate rental revenue under long-term lease agreements (primarily 10 to 20 years). Omega is also a REIT, investing in income-producing healthcare facilities, such as long-term care facilities located throughout the United States. OHI provides lease or mortgage financing to operators of skilled nursing facilities (SNFs) and, to assisted living facilities (ALFs), independent living facilities and rehabilitation and acute care facilities. The business model of both companies is to raise capital through debt and equity and to invest this money in real estate in their respective segments. Through long-term leases capital is returned to shareholders via dividends and hopefully capital gains.
Dividend comparison
In terms of dividend yield OHI wins. OHI currently yields 6.4% (paid quarterly), O yields 5.6% (paid monthly). OHI also shows a higher dividend growth rate. OHI's 5yr DGR is 8.9%, O's is only 3.2%. O's record of dividend payments (and regular increases) is longer than OHI. It seems that based on these metrics OHI is a better choice.
Valuation
But what about valuation? It is one thing to buy a great company, it's another one to buy these companies at good prices. How do O and OHI stack up against each other? A widely used metric for valuation purposes in the REIT sector is the adjusted funds from operations (AFFO) per share, relative to the stockprice. Based on the first three quarters in 2013, O's price/AFFO is 16.3x, OHI's is 13.3x. It seems OHI is cheaper than O. Although based on the 52-week high and low range, O has far more upside potential (+42%) than downside potential (6%) than O's (28% upside, 32% downside).
Whick stock to buy, O or OHI?
Both are obviously great companies and would do fine as part of my portfolio. What would you recommend me to buy? O, OHI, none or maybe some other company in the REIT sector? I am curious to hear from other DGI'ers if they think the time is right to add either one of these companies to their portfolio.
I am planning to make a purchase next week. Since I currently don't have any REIT exposure in my stock portfolio, I would like to add some using fresh capital. Especially considering the recent correction in stock prices due to worries about tapering and rising interest rates, this might be a good time to start a position.
Real Estate Investment Trusts
The REIT universe is quite but but I narrowed it down. I am considering two companies at the moment: Realty Income (O) and Omega Healthcare Investors (OHI). Although these companies are active in a different segment, their business is more or less the same. Realty Income is an equity real estate investment trust (REIT). O is engaged in acquiring and owning freestanding retail and other properties that generate rental revenue under long-term lease agreements (primarily 10 to 20 years). Omega is also a REIT, investing in income-producing healthcare facilities, such as long-term care facilities located throughout the United States. OHI provides lease or mortgage financing to operators of skilled nursing facilities (SNFs) and, to assisted living facilities (ALFs), independent living facilities and rehabilitation and acute care facilities. The business model of both companies is to raise capital through debt and equity and to invest this money in real estate in their respective segments. Through long-term leases capital is returned to shareholders via dividends and hopefully capital gains.
Dividend comparison
In terms of dividend yield OHI wins. OHI currently yields 6.4% (paid quarterly), O yields 5.6% (paid monthly). OHI also shows a higher dividend growth rate. OHI's 5yr DGR is 8.9%, O's is only 3.2%. O's record of dividend payments (and regular increases) is longer than OHI. It seems that based on these metrics OHI is a better choice.
Valuation
But what about valuation? It is one thing to buy a great company, it's another one to buy these companies at good prices. How do O and OHI stack up against each other? A widely used metric for valuation purposes in the REIT sector is the adjusted funds from operations (AFFO) per share, relative to the stockprice. Based on the first three quarters in 2013, O's price/AFFO is 16.3x, OHI's is 13.3x. It seems OHI is cheaper than O. Although based on the 52-week high and low range, O has far more upside potential (+42%) than downside potential (6%) than O's (28% upside, 32% downside).
Whick stock to buy, O or OHI?
Both are obviously great companies and would do fine as part of my portfolio. What would you recommend me to buy? O, OHI, none or maybe some other company in the REIT sector? I am curious to hear from other DGI'ers if they think the time is right to add either one of these companies to their portfolio.