Government Properties Income Trust (GOV), Omega Healthcare Investors Inc (OHI), Health Care REIT, Inc. (HCN): 3 Simple REITs With Great Yields

When I first starting investing I was highly intrigued by companies like American Capital Agency Corp. (NASDAQ:AGNC) or Annaly Capital Management, Inc. (NYSE:NLY). I saw companies trading less than 15 times earnings with dividend yields above 10%. How did companies like this exist? Why wasn’t everyone buying these companies?

Omega Healthcare Investors Inc (NYSE:OHI)A little more research revealed that these companies were mortgage Real Estate Investment Trusts (mREITS) and that they made their money through government agency backed mortgages. At the time it made sense so I went for it, grabbing up a decent chunk of American Capital Agency Corp. (NASDAQ:AGNC).

Over the course of a few months I saw more and more articles being written about interest rate spreads and how these were really the crux of how these mREIT were making money. I tried to dive into more detail and after a few research sessions I gave up. This stuff was complicated. I decided that I knew nothing about how these things worked so I dumped my shares.

After this occurrence, I avoided the REITs for some time. Recently companies in this industry have been subject to tremendous sell offs. With prices being driven down, yields are being driven up.  I am a sucker for great dividend yields. I decided to do some more research on this industry and discovered three REITs that operate much simpler businesses than their mREIT half brothers.

The three companies I really like are Government Properties Income Trust (NYSE:GOV), Omega Healthcare Investors Inc (NYSE:OHI) and Health Care REIT, Inc. (NYSE:HCN)

Government agencies make great tenants

Government Properties Income Trust (NYSE:GOV) owns approximately $1.7 billion of office buildings that are leased mainly to government tenants. The company has a forward Price/Earnings (P/E) ratio of just 10.90 and a dividend yield of 7%.

Government Properties Income Trust (NYSE:GOV) grew revenue over 15% from the same quarter one year ago, outpacing the industry average of 12.1%. This revenue growth has flown through to the bottom line as the company reported net income growth of over 89%.

Government Income Properties also operates a tremendously lean business with a gross margin of 35.90% and a profit margin of 42.80%. The company currently has an occupancy rate of 92.8% and a weighted average remaining lease term of 5.4 years. Government Properties Income Trust (NYSE:GOV) also has a $550 million credit facility it is looking to put to work to finance the acquisition of additional properties.

Long-Term care facilities

Omega Healthcare Investors Inc (NYSE:OHI) owns and operates long-term healthcare facilities in the United States. The company has a forward P/E ratio of 12.06 and a dividend yield 5.70%.

Omega Healthcare Investors Inc (NYSE:OHI) grew revenue over 20% from the same quarter one year ago, outpacing the industry average of 9.6%. With Earnings Per Share (EPS) growth of 36%, the company is very effective at transforming revenue into profit.

Omega Healthcare Investors Inc (NYSE:OHI) also operates a very profitable business with a gross profit margin of 63.40%, outpacing its peers by nearly 30%. The company is also extremely successful at generating cash flow. They currently sport a free cash flow yield of 47.65%. This ratio shows that almost half of all the cash flow generated by Omega Healthcare Investors Inc (NYSE:OHI) is free to return to shareholders. This ratio shows that Omega’s dividend has tons of room to grow moving forward. That coupled with the aging US population makes Omega a great long term buy.

Another play for long term healthcare facilities is Health Care REIT, Inc. (NYSE:HCN). The company was founded in 1970 and manages over $20 billion in properties.

Health Care REIT, Inc. (NYSE:HCN) has paid 168 consecutive dividends. The company has a forward P/E of 16.20 and a dividend yield of 4.50%. Health Care REIT grew revenue over 29% from the same quarter one year ago, outpacing the industry average of 10.1%. This revenue growth has flow through to the bottom line as the company reported EPS growth of 46.1%.

Health Care REIT is also very good at generating cash from its operations. The company grew its net operating cash flow over 49% from the same quarter one year ago. One area people may be concerned with for Health Care REIT, Inc. (NYSE:HCN) is the fact that the price has run up a little bit lately. The company’s stock is up over 30% over the past year is slightly expensive in comparison to other companies in this sector. I feel this price appreciation is warranted due to Health Care REIT, Inc. (NYSE:HCN)’s tremendous operations and feel the company is a great long term buy even at slightly pricey multiples.

Wrap Up

If you don’t understand how a business is operating how can you truly determine its value? When it comes to long term investments I feel that it is best to keep it simple. What is simpler then owning and leasing real estate?

These three companies also have the luxury of locking in long term cash flow by having their residents sign long term leases. (Government Properties Income Trust (NYSE:GOV)’s average new lease term is 26 years) After being beaten down over the last few weeks investors have been presented with a nice buying opportunity. Whose doesn’t love buying great companies at a discount? I know I do.

Daniel Paterson has no position in any stocks mentioned. The Motley Fool recommends Health Care REIT.

The article 3 Simple REITs With Great Yields originally appeared on Fool.com.

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