HCN

Omega Healthcare and Holly Energy Partners: Case Studies in REIT and MLP Income Evaluation

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An assessment of a REIT’s or MLP’s dividend/distribution strength not only should reflect firm-specific fundamentals, but also external market conditions, which are paramount to the sustainability of most any REIT’s or MLP’s payout. Let’s remind readers of this important dynamic, which is captured via the two different Dividend Cushion ratios, and walk through what goes into the analysis we pursue when making a change with respect to our assessment of a company’s dividend health or safety. By Kris Rosemann and Brian Nelson, CFA Real estate investment trusts (REITs) and master limited partnerships (MLPs) are not your typical operating companies. These business structures have certain provisions that incentivize lofty and growing dividends/distributions, which sounds good, but because these business models tend … Read more

Valuentum’s 3 Breakthroughs in the Field of Finance and More

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Valuentum’s President Brian Nelson pauses for a picture before speaking at the CFA Society of Houston in March 2017. By Valuentum Editorial Staff Let’s cover Valuentum’s 3 major breakthroughs in the field of finance. The first one is big and may challenge you to rethink everything you think you know about investing. 1. On a logical framework, Valuentum has debunked John C. Bogle’s landmark syllogism that has paved the way for the concept of index investing. Index investing has been built on a logical shortcoming, whether supported by evidence or not. We think it is important that the investment community know of this. Read (pdf): The “Luck” and “Randomness” of Index Funds (2018), Brian Nelson, CFA See video documentation: /FALLACY_of_Index_Funds To … Read more

Podcast: REITs, Interest Rates and Beyond!

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The Valuentum analyst team talks REITs and the reasons why REIT investors should pay close attention to changes in Treasury rates. Various secular themes across the data center, healthcare, office, and mall REITs are discussed, and an explanation for the sector’s systematically poor raw, unadjusted Dividend Cushion ratios is covered. ~8 mins. Tickerized for various ETFs and the holdings in the VNQ. Brian Nelson, CFA: In September, REITs were officially broken out from the financial sector to their own sector of the S&P 500 — some 30 or so stocks with $600 billion in market capitalization, or about 3% of the S&P 500. Could this change have marked a peak in performance for equity and mortgage REIT stocks? Are investors … Read more

Top-Rated OHI: Not Adding It But Why?

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  Image Source: Omega “In my opinion, a golf club is only as good as the player that uses it, and in a similar light, a financial model or a rating system is only as good as the user that applies it.” — Brian Nelson, CFA Summary We stake so much on the performance of the portfolios in the Best Ideas Newsletter and Dividend Growth Newsletter. They represent the outcome of all of the work we do on the website, rolled into one final assessment: our best ideas for each respective strategy. We value the human, qualitative overlay, which captures a wealth of experience and common sense. The thoughts behind the weighting of each idea and the portfolio management process … Read more

Alert: Health Care REITs Whacked

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We know better than to make mistakes such as HCP (HCP), but we can’t go back now. We’ve been holding onto the company because it was just a sliver of a position in the Dividend Growth Newsletter portfolio, but today we’re saying good-bye. Here’s what we wrote as recently as November 9, “Dividend Growth Newsletter REITs:” HCP continues to be a lesson learned to us here at Valuentum. The firm’s dividend track record had far too high of an influence on our decision making in establishing a position in the REIT in the Dividend Growth Newsletter portfolio. The fact that the company is the only REIT included on the list of Dividend Aristocrats was too attractive for us to deny, … Read more

Alerts: A Long-Time Favorite from the Bullpen and An Interest Rate Risk Hedge

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We’ve long appreciated the stand-out dividend strength characteristics of Cracker Barrel (CBRL) among the full-service restaurant space, and we see an opportunity to add the company to the Dividend Growth Newsletter portfolio today (see page 5). We’ve outlined our case for Cracker Barrel in the past, “Free Cash Flow Feeds Cracker Barrel’s Dividend Growth,” and while we haven’t quite gotten our price just yet, we’re going to inch forward a bit with a small 1.5% position in the Dividend Growth Newsletter portfolio at this time. The company yields a very nice ~3.4%, and its Dividend Cushion is solid for that high of a payout. One of the areas we’re expecting Cracker Barrel to surprise to the upside is the positive … Read more

Dividend Growth Newsletter REITs

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Realty Income’s (O) Dividend Track Record Pictured: Income investors in Realty Income have been handsomely rewarded through the years. Source: Realty Income HCP’s (HCP) Dividend Track Record Pictured: HCP has rewarded income investors in each of the past 30 years with consecutive annual dividend increases. Source: HCP Let’s Talk Interest Rates There’s a lot to think about these days with respect to REITs and rising interest rates. In the equity valuation context, for one, a rising nominal interest rate, by itself, is negative. Increased borrowing costs translate into a higher discount rate applied to a REIT’s future  projected net operating income (or a higher cap rate used in the valuation process), and by extension, results in a lower intrinsic value … Read more

Understanding the Market Melt-Up Wednesday

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The broader US markets continued their roller-coaster ride Wednesday with the Dow Jones Industrial Average (DIA) closing up more than 600 points. There are a number of dynamics at work that explain the large move, which only partially retraces the large declines over the past couple weeks. First, the extreme level of volatility that we are experiencing today in the markets is a direct result of the Fed’s actions to prevent the onset of a modern-day Great Depression toward the latter part of this decade and into this one. By slashing interest rates and engaging in round and after round of quantitative easing for the past several years, the Fed coincidentally pushed yields on fixed-income instruments to insufficient levels for … Read more

Analyzing Healthcare REITs

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The market seems to be unforgiving these days. The threat of rising interest rates continues to weigh on everything REIT-related. The healthcare REITs are tied to the most favorable long-term trend within our coverage universe (the aging population), but that may not be enough to completely offset worries. With many REITs priced on “cap” rates, or the discounting mechanism for future adjusted funds from operations, a looming increase in this measure means that REITs are worth less, all else equal. For some, higher net operating income and funds from operations will help mitigate inevitably higher cap rates, while others may feel ongoing pressure. Let’s walk through the second-quarter performance of three of the best healthcare REITs on the market today.  … Read more

Maintaining Our Small Position in HCP

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Dividend Growth Newsletter portfolio holding HCP’s (HCP) shares have been under pressure as of late, and we’re not happy about it. Part of the reason we were drawn to HCP, and we posit that many others were lured by the same attribute, was that it is the only REIT that is included in the coveted S&P 500 Dividend Aristocrats index. At the time it was added in 2012, there were only 50 companies in all that fit the bill of 1) a market capitalization in excess of $3 billion and 2) a track record of raising their dividends in each of the past 25 years. Though HCP’s fundamental quality has deteriorated since we added it, some of the share price … Read more