HCP: Healthy Dividend Aristocrat

11/10/2014 8:00 am EST


Benjamin Shepherd

Analyst, Breakthrough Tech Profits, Global Income Edge and Personal Finance

Real estate investment trusts (REITs) are generally sensitive to interest rates; however, this specific REIT recommendation will likely not be much affected by rising rates in the long run, argues Benjamin Shepherd, editor of Personal Finance.

The greatest advantage in beating rising rates for HCP (HCP) is that it doesn’t carry as much debt as its competitors. Its debt-to-equity ratio is just 0.8.

HCP’s leases are also inflation-protected, meaning that rents increase annually by, at least, the rate of inflation.

Inflation typically rises faster than interest rates, so the REIT’s cash flows will go up along with interest rates and provide an income hedge.

Its portfolio of properties is a cash cow, generating $1.7 billion in income annually. Quarterly revenues have risen by a factor of five, to $536.1 million over the past decade, and operating income has doubled to $208.2 million.

That growth has helped fund steady dividend increases for 29 years, making HCP the only REIT on the S&P 500 Dividend Aristocrats list.

And HCP has demographics on its side, with seniors accounting for nearly 20% of all Americans by the end of the decade.  Because of the aging population, healthcare spending growth is expected to reach an average of 6.2% between 2015 and 2022.

Meanwhile, HCP has also been the greatest beneficiary of insider buying from among the stocks in our portfolio; it has seen insider ownership rise by 204.4% over the past year.

Insiders are clearly taking advantage of the REIT’s lagging performance over the past year to cash in on its growth prospects and we continue to recommend that you buy it under $44.

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