U.S. REITs: Longest Dividend-Paying Stocks — Welltower (HCN)

 

chart01Although Welltower may not have the highest dividend yield in the healthcare REIT sector, the company certainly makes up for that fact with their size, solid dividend history, and high quality investment properties. This company enjoys status as the longest paying dividend healthcare REIT along with their competitor Universal Health Realty Income Trust (UHT) and HCP. Welltower has recently completed an outstanding forty-four years of quarterly dividend payouts to their investors. This is certainly an incredible record.

Welltower changed the company name from Health Care REIT last September. This initiative was designed to match the name with their investment strategy that is focused on wellness. With $24 billion in market capitalization, this business is a giant player in the healthcare industry. They tend to invest in senior housing, along with post-acute communities, and outpatient medical properties. Welltower maintains investments in the United State, Great Britain, and Canada, although the majority of their annualized base rent is in the U.S.

chart02The Welltower property portfolio is well diversified, as would be expected for a REIT of this size. They divide into three main segments that include triple net lease properties, seniors housing operators, and outpatient medical facilities.

  • Their Triple-net properties tend to range from zero assistance to intensive care facilities. A few examples of this are independent living facilities, assisted living facilities, Alzheimer’s/dementia care facilities, long-term/post-acute care facilities, and hospitals. Welltower does not manage these properties; instead the company leases them to operators under long term, triple net master leases. This portion of the business accounts for thirty-one percent of total revenues.
  • Seniors housing operators are included in some of the above-mentioned properties; however, they are the result of a joint venture between Welltower and the operator. This segment accounts for almost sixty percent of annual revenues. They are structured under the commonly referred to RIDEA structure, which allows REITs to participate in actual net operating income, as long as there is an involved third party manager.
  • Welltower’s outpatient medical segment includes medical offices, surgery centers, laboratories, and diagnostic facilities.

chart04Welltower is certainly a defensive stock that works well in these volatile times. The company has low 0.1 three-year beta. On average it has barely moved in tandem with the S&P500, although it is a component of the index. In addition, the estimated population of the United States citizens sixty-five years or older may very well grow by forty percent by the year 2024. Management is looking ahead and believes that they have room to grow. According Welltower, they have captured less than three-percent of the health care industry.

chart03Welltower has proven methods in order to sustain a 3-4 percent growth in their annual dividend rate. As the funds from operations (FFO) per share grow quicker than its dividend rate, the proportion of FFO paid to their shareholders has declined during the past years. As a matter of fact, this past quarter the company’s FFO payout ratio fell down to 73 percent. It was 90 percent in 2010.

In addition, a conservative capital structure provides the tranquility that dividend investors seek out. Standard & Poor’s has maintained the company’s credit rating at a triple B, which was reaffirmed last year. Much like many other REITS with similar ratings, Welltower’s net debt to adjusted EBITDA remains below 6x. The major private revenue sources, high occupancy rate across their various property types, and the good rent coverage have all helped investors to remain optimistic about the company’s future prospects.

chart05In summary, Welltower has proven itself enough to deserve a place on the cautious dividend investors watch list. Although their AFFO multiple of 17x may not signal the ideal entry point, they do have a superior dividend yield (5.2%) when compared to the average REIT.

Source: Welltower Inc.(NYSE:HCN), Universal Health Realty Income(NYSE:UHT), HCP, Inc.(NYSE:HCP), Fast Graphs, Yahoo!Finance.

Disclaimer: This newsletter is not engaged in rendering tax, accounting, or other professional advice through this publication. No statement in this issue is to be construed as a recommendation to buy or sell any security or other investment. Please do your own due diligence before making any investment decision. Some information presented in this publication has been obtained from third-party sources considered to be reliable. Sources are not required to make representations as to the accuracy of the information, however, and consequently the publisher cannot guarantee accuracy.

Disclosure: The author has no positions in any shares mentioned, and no plans to initiate any positions within the next 72 hours.

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