The only certainty is change, and that’s on investors’ minds today, now that the latest inflation data is out. The Bureau of Labor Statistics reported a month-over-month gain in consumer prices, the CPI, of 0.4%, and an annualized CPI rate of 3.7%. The annualized rate was flat from August, and both figures were unfavorable compared to the expectations, which ere 0.3% and 3.6% respectively.
These data points come as economic headwinds are piling up. Oil prices are rising along with the heat in the Middle East, as the Israel-Hamas war shows no sign of letting up, and domestically, interest rates are high, increasing recessionary pressures. All eyes now will turn to the Federal Reserve. The Fed is scheduled to meet on October 31 and November 1, and prior to today the conventional wisdom had the odds of another rate hike at 29%.
With all of this in mind, it’s probably time to consider getting into dividend stocks. These equities offer investors the advantage of a steady passive income no matter how the markets turn.
Bank of America analyst Joshua Dennerlein has tapped two high-yield payers as choices for investors to buy now. According to TipRanks’ database, these are Buy-rated stocks with dividend yields of up to 8%. Let’s take a closer look.
Sabra Health Care REIT (SBRA)
We’ll start our look at high-yield dividend stocks with Sabra Healthcare REIT, a real estate investment trust with a focus on properties related to the medical and health care fields. This is a rich field for a REIT, especially in the post-COVID reality that puts a premium on health care. Sabra, which was founded in 2010 and is based in Irvine, California, manages a portfolio of 426 properties across the continental US and in western Canada.
These properties comprise a well-diversified portfolio, across five main segments of the health care industry. These include skilled nursing and transitional care facilities, which make up 55.7% of the portfolio; senior housing, which makes up 15.4%; senior housing leased, for another 10.5%; behavioral health facilities, at 13.6%; and specialty hospitals, which are 4% of the portfolio. Sabra owns, manages, and leases out these properties and realized $625 million in annual revenue for 2022.
All of this adds up to big business. Sabra boasts a market cap of $3.34 billion and an enterprise value of $5.1 billion – and has $900 million in liquid assets. The company will release its 3Q23 results next month, but a look back at the 2Q results will give us an idea of where it stands.
The company had revenues of $161.2 million in the second quarter, up 3.3% year-over-year and in line with expectations. The company’s FFO, or funds from operations, came in at 9 cents per share, up 2 cents year-over-year and again in line with the forecast.
Sabra’s FFO and liquid assets together supported the dividend, which was last paid out on August 31 at a rate of 30 cents per common share. This payment annualizes to $1.20 and gives a strong yield of 8.33%, more than double the current annualized rate of inflation.
Covering this stock for Bank of America, analyst Joshua Dennerlein explains why this REIT is so attractive: “Our Buy rating on SBRA is based on our view that SBRA’s earnings growth trajectory is more attractive than peers. We see this growth driven by portfolio condition following lease restructuring, healthy cap rates among SNF investments, improvements in investment volumes, and better than expected CMS staffing requirements. We are constructive on the senior housing recovery and further external growth opportunities flagged by management.”
Dennerlein’s Buy rating comes with a $16 price target, suggesting ~12% upside for the coming year. Together with the dividend yield, that points toward a potential return of ~20%. (To watch Dennerlein’s track record, click here)
Overall, Sabra maintains a Moderate Buy consensus rating, based on 9 recent analyst reviews that break down to 4 Buys, 4 Holds, and 1 Sell. (See SBRA stock forecast)
Omega Healthcare Investors (OHI)
Next on our list is Omega Healthcare Investors, another REIT with a focus on health care facilities. Omega, which has been in business since 1992, owns and leases out skilled nursing facilities (SNFs) and assisted living facilities (ALFs), a total of 893 such properties, located in 42 US states as well as the UK. The company’s facilities are operated by 66 third-party companies and boast a total of 88,322 beds.
Omega manages these properties as triple-net leases, or NNN agreements, a structure that puts all responsibility for property maintenance, taxes, and insurance on the tenant or lessee, in addition to the usual rent and utilities. In return for the tenant taking on the ongoing expenses, the lessor accepts a lower rent payment. This structure has benefits for property owners and their investors, primarily because they provide a steady, low-risk income stream.
That income stream has provided Omega with steady, profitable business. The company’s revenues are swinging back upward after a dip at the end of last year. The last reported quarter, 2Q23, had Omega reporting a top line of $250.2 million, which was $51.4 million over the estimates and up a modest 2.3% year-over-year. The company also reported a strong adjusted FFO of 74 cents per share, 6 cents better than expected, and enough, on its own, to cover the firm’s regular quarterly stock dividend.
That dividend currently stands at 67 cents per common share and was last paid out on August 15. At the current rate, the dividend annualizes to $2.68 and provides an inflation-beating yield of 7.91%.
Turning back to Bank of America’s Dennerlein, we find the analyst upbeat on Omega’s fundamental soundness. He writes of the company and its stock, “Our Buy rating is driven by portfolio condition following lease restructuring, healthy cap rates among SNF investments, improvements in investment volumes, and better than expected CMS staffing requirements. We believe the worst is behind us from a fundamental perspective, but may take more time to fully recover. Skilled mix and occupancy has been improving which we expect to continue helping to minimize future CF issues across the tenant base.”
To this end, Dennerlein rates OHI shares a Buy, while his $36 price target points toward a ~6% upside. Add in the dividend yield, and the one-year return stands at ~12%.
Overall, Omega’s stock gets a Moderate Buy rating from the analyst consensus, based on 15 reviews that include 5 Buys and 10 Holds. (See OHI stock forecast)
To find good ideas for dividend stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
