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.
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.
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.
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.
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.
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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.
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