Description

Short term arb for tax free accounts. Omega recently announced a full catch-up of all preferred dividends:

Dividend - 5.93
Pay Date - 8/15
Record Date - 8/5
Ex-Div - 8/1

OHI-A pays 6.36 at the same time, it currently trades around 29.50. The discount is greater on OHI-B, but the B coupon is lower so it's more likely to trade below par x-div. I advise splitting your purchases between A and B.

Will OHI-A and -B trade at par x-div? No guarantee, but similar credits in the sector (e.g. LTC) do. IMHO the only reason OHI-A and B don't trade around 31.50 and 30.50 respectively right now is that there's no effective way to arb this in a taxable account. REIT dividends generally do not qualify for 15% tax treatment. It's possible most of the catch-up dividend will be declared return-of-capital, but that just reduces your cost basis. If you sell within a year you still pay ordinary income tax rates.

None of this matters in a tax-free account. You can buy today or tomorrow and sell in a couple of weeks (maybe as early as Friday), pocketing around $2/share for your troubles. That's only a 7% gain, but it annualizes out pretty well.

Catalyst

X-DIV on Friday (8/1/03).