Recent Sell – OHI

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Here’s a quick update on a sale in my portfolio. Sales are always hard, especially when times are good and investors are riding the coattails of one of the best performing bull markets in modern times. When things are rosy, we tend to feel that the good times will continue forever. The world has been awash in liquidity for a decade investors have been awarded for taking more risk.

But there is change in the air. As the monetary policy tightens and the central bankers sponsored punch bowl is taken away, I have been looking very closely at some of the fundamentals of my company holdings. During this review, I decided to liquidate one of my stocks.

I sold and closed my position in Omega Healthcare Investors Inc (OHI).

Recent Sell Decision

  • Main reason: De-risking. The company is a darling in the dividend growth sector. Most investors love it and swear by how amazingly well run and sweet the deal is for reaping 10% in yield. Just the yield should send up some red flags although from a cash flow perspective, the company is still seems ok. OHI took a beating over the past few quarters when it was disclosed that the #1 and #3 lease holder for their businesses will have trouble making rent payments due to a liquidity crunch. Perhaps the companies will come through and all this will blow over, but I decided to de-risk and sell anyway.
  • While the problems have been apparent for a while, the management team continued raising dividends every quarter and returning cash to shareholders hoping for the best — not the smartest decision imho.
  • In general REITs are under more pressure as the broad market has started selling off some of the high yielders as the interest rates climb. I think REITs are still a good place to be (as I believe that interest rates cannot rise too much without causing a financial storm), but only when I have full confidence in the company and its tenants.
  • This also fits into my overall goal for the year to move some of my funds away from individual stocks into broad ETFs — since I do not want to be watching and closely monitoring these companies regularly. See more details on my goals for 2018 here.

What do you think? Do you own OHI? Share your thoughts with a comment below.

Total Profit (including dividends): 41.6%. Held and earned dividends for approx 5, so profit was ~8.3% per year.

Disclosure: Our full list of holdings is available here.

16 thoughts on “Recent Sell – OHI

  1. R2R, Have never owned OHI, but have considered it many times. I do own a couple other popular names in that REIT sector. Like you, I start to question when the yield gets that high on a stock I own. What does the market know that I do not? I have been pruning my high yielders over the last couple years to de-risk my portfolio as the bull market gets a little older Tom

      • FYI – the comment above was not left by me (Keith of DivHut) even though the link from “John” points to my blog. Just wanted to make sure you knew that. I agree that selling is always hard and following OHI on blogs and Seeking Alpha it appears that the community is divided on this stock. Some see it as a great value and others are giving up on it citing more fundamental issues with the business. No doubt, REITs will remain under pressure for the foreseeable future but I think the better run names will fare just fine in a higher interest rate environment. I’m holding on to all my health REITs and reinvesting automatically for now. Thanks for sharing.

        • Haha yeah I thought it was weird that it said John and was linked to your side. Figured it was some other reader, who just liked to link to you 🙂

          Yeah I wish I had exited when the whole REIT sector fell out of favor as I see some good values in REIT now. Will be looking to put that cash to work elsewhere.

          R2R

  2. Selling is always hard I own like 151 shares was going to build up other positions before this trouble started so the plan is the same. If it blows over fine Which I think it will. Hopefully next year they get back to some raises even if it’s not every month will still be fine

    • Yeah I was a big fan when I started and was blinded by the quarterly raises….but taking a closer look, the company hasnt been as diligent as they should be. Probably nothing, but I’d still like to play it safer.

      R2R

  3. I agree with a lot of the comments above. Management may have not made some of the best decisions but I think that they are operating in a much needed space. I won’t be adding to my position until some of the dust settles but for now I am just going to hold. I am glad to hear that you made a nice profit on it. Thanks for sharing.

  4. I have never invested in US Healthcare but I have purchased a few dogs in the Cdn space. If you want to destroy shareholder value then that is where money goes to die. I lost big time on investments in PLI, AUP and BIOA. I’m never going back and risking my retirement money in healthcare stocks. Just a brutal gut churning experience. All the Best!

    • I looked at a few Canadian players in the space a couple of years ago, but almost every single one of them have horrible financials. I wouldnt risk a single penny on any of them. Glad that you got out instead of gambling on them.

      R2R

  5. R2R,

    You’re right, this company was the darling of the dividend investing community for a long time. But yeah, I can understand the decision to sell based on the news about the major tenants. HCP has been going through something similar and it has/will be a long road to recovery. But if the company doesn’t fit your portfolio any more and you do not want to own it, then why not get that thing out of there! You can find a better use of your capital in a company that checks all of your boxes at the moment.

    Bert

    • Yeah too many red flags with this one…so decided to take my profits and leave. If I did want to play in the space, there are a few other that are more attractive investment opportunity.

      Best
      R2R

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