Last week, we discussed 9.5%-yield Omega Healthcare (NYSE:OHI), its different dividend cut scenarios, and its potential returns as a result.
This week, we’re looking at another healthcare REIT, NorthWest Healthcare Properties REIT (TSX:NWH.UN). It attracts income investors in multiple ways. First, it pays a big dividend through a monthly payout. Second, the healthcare REIT’s international portfolio provides a unique offering. Third, it recently demonstrated that it can grow its net asset value per unit (NAVPU).
Get a big dividend from this healthcare REIT
Any income investor would love to get a big paycheque every month. NorthWest Healthcare Properties REIT currently offers a yield of almost 5.9%. It has maintained the same annualized payout of $0.80 per unit since 2012.
Big dividend stocks are tempting. Who doesn’t want to buy shares of a company and sit back to enjoy juicy passive income? Stock investing is not so simple, though. Big dividend yields can be cut.
As a dividend investor who targets extraordinary total returns, I sometimes battle between getting a nice dividend income and a high expected total return. Sometimes, investors can get the best of both worlds, though. When it’s clear a nice dividend stock could deliver high returns, it’s easy to make an investment decision. Other times, the market has given a clear signal that a high yield dividend stock’s dividend could be in danger. Usually, slow growth piggyback on high yield stocks.
Here’s a high-yield dividend stock you might have looked at over the last year.
A dividend stock with a +9% yield
Honestly, I have been tempted by Omega Healthcare (NYSE:OHI) juicy yield in the last month or so. Currently, it almost yields 9.2%! However, my investment decision doesn’t entirely depend on the +9% yield, because there’s the danger that the healthcare REIT could cut its yield to lower levels. Therefore, if I buy the dividend stock, it wouldn’t only be for the dividend, it’ll also need to be a good total-return investment.
Too many investors ignore stock valuation when they purchase dividend stocks for income. There’s a tradeoff. They simplify the investing process by averaging into quality businesses but risk having a higher average cost for their dividend investment. Consequently, a higher cost leads to a lower initial dividend yield (and lower subsequent yield on cost when the dividend stocks increase their dividends).
How do you tell a dividend stock’s valuation?
Some investors do not know how to value dividend stocks. Understandably, there isn’t a clear-cut formula to determine if dividend stocks are undervalued, fairly valued, or overvalued. Too many factors come into play, including the stability of the business’s earnings or cash flow, the historical valuation, the growth rate in the future, the safety of the dividend, etc.
If you’re not sure about how to determine if a stock is cheap or not, use the analyst consensus price target as a guide. Although sometimes there are big changes for these price targets after an earnings report, it’s still better than ignoring the valuation factor altogether.