High-Yield Stock Thriving From 1 of the Biggest Demographic Trends

Chartwell Retirement Residences (TSX:CSH.UN) reports a very strong third quarter, further highlighting the strength in this name.

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published November 17, 2017 11:03 am EST

We are all aware of the fact that one of the biggest demographic shifts is taking place, and with it comes lucrative opportunities for investment.

I am, of course, referring to the aging population, and as the baby boomers are now between the ages of 51 and 70, we continue to see healthcare and healthcare-related companies thrive.

According to census numbers, the percentage of Canadians that are above the age of 65 is fast approaching 20%. This number has been steadily rising, and just five years ago it was closer to 15%.

Two of the ramifications of this aging population are: (1) they need income-producing investments, and (2) industries that cater to this group, such as the healthcare and the long-term-care industry, will outperform.

Chartwell Retirement Residences (TSX:CSH.UN) is one such company, with a strong, consistent dividend yielding 3.63%, and good growth ahead of it.

Chartwell has not only provided a healthy dividend yield over the last few years, but it has also provided investors with capital appreciation in the form of a rising stock price. The stock has a three-year return of 35%, and a year-to-date return of 9.1%.

As an owner of senior-housing communities from independent living to long-term care, Chartwell has been benefiting from rising occupancy levels, as an uptick in demand is accompanied by a steady supply of senior housing.

And as Canada’s largest senior-housing provider, Chartwell provides investors with the go-to name in this space.

As of the third quarter of 2017, occupancy levels were 93%, and with consistently rising earnings and a dividend that has increased yearly in the last three years, the company is clearly seeing positive trends.

Fund from operations increased 9.3% in the quarter, as the dividend-payout ratio remained at healthy 36% (94% if we include capital expenditures), and debt levels remain easily covered, with an interest coverage ratio of 3.4 times.

Going forward, the company has a strong pipeline of opportunities to expand its portfolio of senior-housing development as well as a plethora of opportunities to continue to expand its support services that are offered in house.

For example, Chartwell has been working hard at expanding its sources of revenue by introducing additional care and ancillary services, such as dental, foot care, and physio services.

In summary, as occupancy levels increase at Chartwell’s residences, the company will benefit greatly, as leverage to increases in occupancy levels remains very significant.

With demographic shifts on our side, and a strong dividend yield, Chartwell makes a great addition to any investor’s portfolio for income as well as capital appreciation potential.