Dividend Stocks: Here’s a Diamond in the Rough Yielding Over 9.5%

Northwest Healthcare Properties is a defensive REIT with a long history of dividend payments and a bright future.

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In today’s inflationary environment, investing in the right dividend stocks can shelter your portfolio from the storm. Northwest Healthcare Properties REIT (TSX:NWH.UN) is a little-known dividend stock that’s currently yielding 9.73% – and it’s positioned quite nicely for the years ahead.

In this article, I’ll discuss Northwest Healthcare Properties and why it’s a real bargain today that’s worth considering.

Healthcare Properties: A defensive and growing industry

Being the owner and operator of health care properties around the world, Northwest has created highly defensive business. You see, we need health care services when we need them – the economy doesn’t play a part in this. This makes them virtually 100% independent of what’s going on in the economy.

So let’s take a look at Northwest’s portfolio of properties. They include buildings such as hospitals, medical office buildings, and rehabilitation centres. These buildings are characterized by long-term tenancy, with a weighted average lease expiry of 14 years. They’re also characterized by stability, and they’re often supported by government funding.

At this time, this portfolio of medical buildings is thriving. In fact, the occupancy rate is 97%. This means greater returns for Northwest’s properties and greater cash flows. In 2022, net operating income and revenue both increased 20%. In 2022, Northwest reported revenue of approximately $449 million, up 28.4% compared to five years ago. Trends are strong, as the aging population is driving a booming healthcare sector.

Inflation protection and so much more

Another important characteristic of Northwest Healthcare is its inflation-tied revenues. This is always nice, but especially so in today’s inflationary environment. In short, Northwest’s long-leased and inflation-indexed assets are extremely valuable today.

Yet, there is something that bothers me. While the trends that are working in Northwest’s favour are powerful, we can’t escape the fact that the real estate business is very capital intensive. Consequently, Northwest has been very leveraged at times.

But digging a little deeper, I see that there’s an action plan to address this problem. For example, management completed a number of re-financings, which have reduced interest costs. Also, Northwest recapitalized its UK portfolio, using the proceeds to repay higher cost debt. With such actions, Northwest’s debt-to-market capitalization ratio has fallen to 48%.

Long history of dividend stability

Lastly, I would like to discuss Northwest’s dividend track record. Northwest has been around in its current form since 2010 – and so has its dividend. Its annual dividend has, in fact, held steady at $0.80 per share. And while there’s been no dividend growth during this time period, the yield has been consistently high. Very importantly, despite some really challenging times, Northwest kept it steady.

Today, Northwest is yielding almost 10%, a very generous yield by all measures. Looking ahead, management anticipates a 10% growth rate in adjusted funds flow for 2023. This, coupled with a dividend payout ratio that’s been reduced to 67%, makes Northwest a good buy today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Karen Thomas has a position in NorthWest Healthcare Properties REIT. The Motley Fool recommends NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy..

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