Profiting From Obamacare

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
Founded in 1992 in Hunt Valley, Md., Omega Healthcare Investors Inc. (OHI) invests in principally long-term healthcare facilities in the United States. Currently, the company lists 432 facilities — 91.5% owned, 8.5% mortgage financed — in 34 states with 51 different operators. The company lists gross investment in the portfolio of $2.8 billion.
Omega Healthcare operates as a real estate investment trust (REIT). As a REIT, it is not subject to federal corporate income taxes if it distributes at least 90% of its taxable income to its shareholders.
Although you already have significant exposure to the U.S. REIT market, medical real estate is a highly focused industry that differs from both residential and most traditional commercial real estate.
That fact, combined with the coming tsunami of Obamacare, makes Omega Healthcare a more diversified bet than it may first seem.
As you know, on June 28, the United States Supreme Court upheld the constitutionality of Obamacare.
Love it or leave, Obamacare will benefit healthcare REITs like Omega Healthcare in a big way.
After all, Omega Healthcare manages the properties and acts essentially as landlord to its hospitals and related facilities. And the major risk to Omega Healthcare was always that the revenue for the company’s tenants primarily comes from the government programs of Medicare and Medicaid. And when there were threats of cutbacks — well, that was not good news for Omega Healthcare.
But with the federal money spigots now open to full tap, Obamacare obviously solves this problem. Added business for hospitals will also mean that Omega Healthcare’s clients will more easily pay their rent, better handle coming rent increases, as well as have the money to expand their facilities.
For 2012, Omega Healthcare’s management FFO (Fund From Operations) guidance is a range of $2.09 to $2.12 per share — 80% to 85% of which is paid out as dividends. In the past, Omega Healthcare has consistently beaten the high end of guidance. That means FFO — and the dividend — should increase by about 11% in 2012. The dividend has been already increased for the first two distributions of 2012 — about 10% higher than the year-earlier payout. Overall, the stock currently yields 7.22%.
So buy Omega Healthcare Investors Inc. (OHI) at market today, and place your stop at $21.00.
For potentially bigger gains, buy the December 2012 $25 call options (OHI121222C00025000).

Portfolio Update

Hospitality Properties Trust (HPT) dropped 2.57% this past week. Updating the information from last week, on July 9, HPT announced a regular quarterly common share distribution of $0.45 per common share ($1.80 per share per year) payable to HPT’s common shareholders of record as of the close of business on July 27, 2012, and distributed on or about August 22, 2012. Still above its 50-day moving average, HPT remains a BUY.
Global X SuperDividend ETF (SDIV) fell back 1.44% as global markets stumbled. The 12-month yield for the Global X SuperDividend™ ETF (SDIV) has been 7.97%. SDIV remains a BUY.
Two Harbors Investment Corp. (TWO) rose yet another 1.5% as the rally in U.S. REITs continues. The $0.40 dividend is payable on July 20, 2012, to common stockholders of record at the close of business on June 22, 2012. With lower leverage and therefore less risk than its peers, TWO is a BUY.
American Capital Agency Corp. (AGNC) rose just under 1% last week. You’ll be getting a cash dividend of $0.556 per share on July 16, 2012, paid to preferred shareholders of record as of July 1, 2012. AGNC remains a BUY.
Prospect Capital Corporation (PSEC) tumbled 6.5% last week after the company priced a follow-on stock offering of 21 million shares at $11.15 a share, possibly diluting the value of investors’ current holdings in the short run by boosting share count. For the current quarter, Prospect is expected to record a 23% rise in earnings per share (EPS) to 38 cents and revenue growth 49% to $83.8 million. Yielding above 11% and paying dividends monthly, but now below its 50-day moving average, PSEC is a HOLD.
iShares FTSE NAREIT Mortgage REIT (REM) pulled back a hairsbreadth during the past week. REM is well diversified and offers high risk adjusted returns in the REIT space. REM is a BUY.
PIMCO Municipal Income Fund II (PML) rose 0.23 % last week. The fund announced a monthly dividend of $.065 payable on August 1, 2012, to shareholders of record on July 12, 2012, with an ex-dividend date of July 10, 2012. This bet on municipal bonds remains a BUY.
UBS E-TRACS 2xLeveraged Long Wells Fargo Business Development Company ETN (BDCL) pulled back 2.05% last week. Trading above its 50-day moving average, it remains a BUY.

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