We Expect Continued Growth In HCP's And Omega's Dividends

HCP Will Remain on the Dividend Aristocrat List for Some Time to Come

HCP (HCP)-4.9% annual yield-a fully-integrated REIT serving the healthcare industry, reported third-quarter results. Funds from operations (FFO) advanced 9% to $0.73, while FFO as adjusted per share increased 14%, to $0.79. Funds available for distribution jumped an impressive 22% in the period, to $0.67. The company achieved cash same-property-portfolio net operating income growth of 3.7% for the period, an acceleration from the nine-month pace of 2.8%. HCP raised its full-year guidance for FFO as adjusted to the range of $2.97-$3.03 per share, representing a growth rate of 8% based on the midpoint over 2012 FFO as adjusted per share. The REIT also raised its FAD guidance to the range of $2.48-$2.54 per share, which is 13% higher than the midpoint over 2012 FAD per share. Based on the REIT's annualized cash dividend of $2.10 per share (at the time of this writing), expected distribution coverage for 2013 will be roughly 1.2 times (FAD per share dividend by dividends per share), a very impressive figure. We think the excess coverage signals 2014 will be a healthy year for yet another dividend increase at this Dividend Aristocrat.

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Image Source: HCP, Annual Meeting of Stockholders (April 25, 2013)

Omega's Payout Targets Suggest Further Upside in Its Dividend

Omega Healthcare (OHI)-5.9% annual yield-a REIT that provides financing and capital to the healthcare industry, reported third-quarter results recently. Funds from operations (FFO) totaled $70.3 million during the quarter, or $0.59 per common share, which compares to $56.7 million in the year-ago period, or $0.52 per common share. Adjusted FFO (AFFO) was $74.2 million, or $0.63 per common share, which compares to $58.7 million, or $0.54 per common share, in the year-ago period. The REIT affirmed its 2013 adjusted FFO to be in the range of $2.48-$2.51 per share and its 2013 adjusted funds available for distribution to be in the range of $2.23-$2.26 per share. Based on Omega's annualized dividend of $1.92 per share (at the time of this writing), expected distribution coverage will be roughly 1.17 times (FAD per share dividend by dividends per share), a solid figure. Omega seeks a stable dividend payout ratio of 75%-85% of adjusted FFO and less than 90% of adjusted FAD. The REIT is on target for an AFFO payout ratio of 77% and an FAD payout ratio of 85.5% for 2013. We think there is room for further dividend expansion in coming years.

Image Source: OHI, Investors Presentation (May 2013)

Valuentum's Take

Both HCP and Omega Healthcare have fallen from grace as of late. Though Omega is still up considerably from when it first flashed a 9 on the Valuentum Buying Index in April 2012 at $21 per share, the recent pullback (from $38 per share to $31 per share) hasn't been that great for investors. We also note Omega is still up materially from our profile piece released in January 2013. HCP's pullback, on the other hand, has been a bit more dramatic, though the Valuentum Buying Index has yet to flash the idea for consideration. In any case, we expect continued growth in HCP's and Omega's respective dividends, and we are paying very close attention to them for consideration in our Dividend Growth portfolio.

Source: We Expect Continued Growth In HCP's And Omega's Dividends

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. (More...)

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