Care Capital: High Yield in Healthcare
10/14/2016 8:00 am EST
As one of the few REIT sectors to rise significantly in 2016, the healthcare REIT sector is a rare place where investors can get high yields and earnings at a good price, states Todd Shaver, editor of Bullmarket.
Additionally, demographic headwinds due to an aging population make Healthcare REITs a lower risk bet.
This was done to offer Care Capital the opportunity to add value to shareholders by focusing on its investments in skilled nursing facilities and real estate assets catering to healthcare industry tenants.
The company focuses on triple-net lease assets; usually, only the highest quality tenants choose triple-net leases because the large overhead is a hurdle for smaller, more cash-strapped companies.
Although the company is very new as a standalone firm, its longer history as part of Ventas means the company already has a portfolio of 340 properties across the United States.
The company’s dividend coverage is 144%, as FFO has risen markedly since the company went public in 2015.
Price-to-FFO, like the more familiar price-to-earnings ratio, is used to see exactly how much an investor is paying for a REIT’s earnings. This ratio implies both a safe payout and room for dividend increases.
We see future growth over the long term for the company in both dividend payout and stock price. The company has not yet increased dividends despite its very high dividend coverage.
Being just a year old, the company may surprise the market with a dividend increase, and that may cause a sharp inflow of capital into the stock.
We recommend buying and holding Care Capital Properties now in anticipation of growing demand for the stock in the market as its FFO and dividends rise.
By Todd Shaver, Editor of Bullmarket