February 26, 2016
Can Welltower (HCN) keep it’s 5.4% Dividend?
One of our favorite healthcare-specific Real Estate Investment Trust’s (or REIT’s) specializing in senior housing, long-term care facilities, and other medical properties was recently mentioned in an article from Motley Fool outlining some advantages. We believe this stock is poised to do very well in the future thus rewarding shareholders both with it’s 5.4% dividend yield and a potential gain in share price. Below we detail three possibilities that could make this investment and two that could break it…
3 Makes
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[expand title=”Large $1 Trillion market for senior housing and long-term care facilities projected to get much larger.”]
Growing Market – The U.S. market for healthcare real estate is currently about $1 trillion in size and the market has the potential to get much larger. Over the next 45 years, the U.S. population over 65 years old is projected to double, and the 85+ population is expected to triple. Not only will this create an obvious need for more senior housing and long-term care facilities, but older individuals tend to visit doctors and hospitals more frequently as well. So, the $1 trillion market could easily become $2 trillion, $3 trillion, or even more over the next few decades.
Source: Welltower
[/expand]
[expand title=”Strong partnerships with some of the best health care operators in the business.”]
Strong Partnerships – One of the best aspects of Welltower’s investment strategy is that the company loves to capitalize on its strong partnerships with some of the best healthcare operators in the business. In fact, 60% of its recent investments were made alongside existing partners, including such industry heavyweights as Sunrise Senior Living, Genesis HealthCare, Brookdale Senior Living, and more.[/expand]
[expand title=”Long track record of shareholder friendly management shown by regular dividend increases since 1971.”]
Growth and Income – The result of Welltower’s smart investment strategy and the industry trends is an excellent combination of growth and income. The company has increased its dividend regularly since its 1971 IPO, and has produced an average total return of 15.6% per year throughout its history – a remarkable level of performance to sustain for over four decades. At today’s price of $62.67 per share, Josh Peters, CFA from Morningstar believes it’s ~23% undervalued with a fair value of $81 per share. That’s terrific upside potential, and with the trends I mentioned above, we see no reason why it won’t continue to grow for another four decades. This is why we own this stock in our retiree accounts that are looking for growth and income.If you’d like to receive our letters, please subscribe by adding your email below.[/expand]
2 Breaks
[expand title=”Rapid interest rate increases causing an increase in borrowing costs.”]
Rapid Interest Rate Increase – Janet Yellen of the Federal Reserve recently raised rates for the first time in nine years. General consensus appears to be a modest increase of a few hikes per year until rates return to historical norms. If rates move higher at a much faster pace that will create uncertainty in all companies using large quantities of debt to finance operations. This stock is no exception. These conditions could cause dividend reduction, or elimination, and/or a loss of principal. [/expand]
[expand title=”Significantly slower growth in the industry than expected or an unforeseen major economic slow down. “]
Major Slowdown – Any major change to the medical industry that would reduce the demand for senior housing and long-term care facilities in the future will negatively affect this stock. Other significant macro economic issues outside the industry could also slow growth and delay large share price and dividend increases. These conditions could also cause dividend reduction, or elimination, and/or a loss of principal. [/expand]
1 Stock
Welltower HCN
Want to hear how Welltower (HCN) can be part of a retirement income strategy? Please call 503-387-3222, or email [email protected]
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Past performance of this stock is no guarantee of future results. This article should not be construed as investment advice and should be used only for educational purposes. RIA owns a significant portion of this stock in our client portfolios, which we plan to hold for years to come.