1 Under-$10 Dividend Stock to Buy for Monthly Passive Income

With a forward dividend yield of over 10%, this monthly paying dividend stock could boost your passive income.

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With inflation showing signs of cooling down and easing banking crisis fears, the Canadian equity markets have witnessed healthy buying this month. The Canadian benchmark index, the S&P/TSX Composite Index, is up over 2% since the beginning of this month. However, concerns over the impact of prolonged higher interest rates on global growth persist.

Meanwhile, investors can earn a stable passive income, irrespective of the momentum in equity markets by investing in high-yielding dividend stocks. NorthWest Healthcare Properties REIT (TSX:NWH.UN) would be an excellent dividend stock to have in your portfolio, given its stable cash flows and high yield. Also, you can buy the stock for less than $10. Now, let’s look at its business, financials, and growth prospects in detail.

NorthWest Healthcare’s operations

NorthWest Healthcare owns and operates 233 healthcare properties, with a total leasable area of 18.6 million square feet. The company enjoys a high occupancy rate due to its highly defensive healthcare portfolio and long-term lease agreements. The weighted average of the remaining life of lease contracts stood at 14 years as of March 31. Its occupancy rate for the March-ending quarter was 97%.

With around 83% of its lease indexed to inflation, rising prices will have a minimal impact on the company’s financials. The company enjoys a diversified portfolio of around 2,000 tenants, with approximately 80% of them having government backing.

Selloff in NorthWest Healthcare

NorthWest Healthcare has been under pressure this year, losing around 15% of its stock value. The rising interest rates and its weak first-quarter performance have weighed on the company’s stock price. The company’s revenue and NOI (net operating income) grew 29% and 24% in the first quarter.

However, due to higher interest rates, a temporary increase in its leverage, and lower transaction volumes, the company’s AFFO (adjusted funds from operations) per unit declined by 19% to $0.17, dragging its stock price down. However, despite the challenging conditions, the company has continued to pay its monthly dividends. For June, it has announced a monthly dividend of $0.06667/share, translating its forward yield to an attractive 10.33%.

Notably, the selloff in the company’s stock price has dragged its valuation down to attractive levels, with its NTM (next 12-month) price-to-sales and price-to-book multiples at 3.8 and 0.8, respectively.

Investors’ takeaway

Amid rising interest rates, NorthWest Healthcare has taken several deleveraging initiatives. It plans to sell its non-core assets, which could raise net proceeds of around $340 million. The company is also working on lowering its stake in its United Kingdom and United States joint ventures. All these initiatives together can generate net proceeds of around $550-$600 million, which could help pay off certain high interest-bearing debt. The company also strengthened its balance sheet by raising around $75 million in April by issuing convertible unsecured subordinated debentures.

Meanwhile, the company had $4.6 billion of fee-bearing capital at the end of its March-ending quarter. So, it is well positioned to execute new investment opportunities while remaining disciplined in its capital allocations. Given its improving financial position, stable underlying business, discounted stock price, and high dividend yield, I believe North West Healthcare would be an ideal buy for income-seeking investors.

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 Rajiv Nanjapla has no position in any of the stocks mentioned. The Motley Fool recommends NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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