What Investors Love About This 5.9% Big Dividend Healthcare REIT

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).

hospital hallway

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.

So, it would be ideal if income investors could buy the high-yield dividend stock during market crashes to lock in an even more compelling yield. For instance, during the pandemic market crash last year, the TSX stock dropped below $6 per unit, which equated to a yield of over 13%! Imagine earning that massive yield in your Tax-Free Savings Account (TFSA).

Remember that it’s okay to not buy at the bottom. Even if you just bought the stock after it first showed signs of stabilization at $8.50 per unit, you would have still enjoyed a respectable yield of 9.4%.

Notably, Northwest Healthcare Properties’s diluted adjusted funds from operations (AFFO) payout ratio averaged just under 97% in the first nine months of 2021. But you’ll find the REIT’s latest payout ratio to be 87%, which is based on its normalized Q3 2021 AFFO of $0.92/unit and the annualized payout of $0.80 per unit. The expectation of growth should also lead to a safer dividend.

One of our readers kindly reminded us that the REIT doesn’t pay dividends but pays cash distributions that are taxed differently than dividends in non-registered or taxable accounts. See the corporate website for an idea.

International portfolio

NorthWest Healthcare Properties REIT owns an international portfolio across 192 income-producing healthcare properties, including hospitals and healthcare facilities. It generates rent from more than 2,000 tenants across 7 countries.

Because of the essential nature of its properties, the REIT’s occupancy is approximately 97% and its weighted average lease expiry is 14 years. High occupancy and long-term contracts are a rare combination. Additionally, all the talk about high inflation doesn’t scare NWH.UN because the REIT enjoys 76% of inflation-indexed rents. Consequently, its cash flows should be stable.

Growth?

The healthcare REIT recently demonstrated growth, as a growing global asset management platform in healthcare real estate. It earns management fees from this platform. In Q3, it had $3.7 billion of undeployed capital in its active funds.

For example, management was able to create $160 million of value from its U.K. portfolio that helped drive NAV growth. If management can make a track record of the growth, the stock should continue nudging higher.

Investor takeaway

Northwest Healthcare REIT’s monthly dividend yield of 5.9% appears to be safe. The stock is fairly valued right now, but it can head higher steadily if management continues to execute on growth. Otherwise, for a better margin of safety, wait for a market correction in the high-yield stock.

NWH.UN is the opposite of OHI. NWH.UN trades at a full valuation but is expected to experience growth. OHI trades at a discount of roughly 33% on expected stagnant growth over the next couple of years.

If you like what you've just read, consider subscribing via the "Subscribe Here" form at the top right so that you will receive an email notification when I publish a new article.

Disclosure: As of writing, we doesn’t own shares of any stocks mentioned.

Disclaimer: I am not a certified financial advisor. This article is for educational purposes, so consult a financial advisor and or tax professional if necessary before making any investment decisions.

Get Exclusive Articles from me on Seeking Alpha

  • Access my portfolio of high-quality U.S. and Canadian dividend stocks.
  • Real-time updates of when I buy or sell from this portfolio.
  • Get best ideas of the top 3 dividend stocks from my watchlist. Updated each month.
Learn More