Shares of NorthWest Healthcare Properties REIT (TSX:NWH.UN) have been on the rise over the last month, remaining stable even after earnings. But it’s a slow rise after a huge fall for NorthWest REIT, with the stock down 47% in the last year alone.
With the most recent earnings report leaving investors at least satisfied for now, what should future investors do with NorthWest REIT? And is its ultra-high yield worth it?
What happened?
NorthWest REIT announced its earnings results for the second quarter this week, and results were stronger than perhaps investors planned for — especially after the stock announced the cancellation of a joint venture in the United Kingdom for healthcare properties earlier this year.
Revenue for the three months ending June 30 increased by 13% year over year, with adjusted funds from operations per unit falling from $0.20 to $0.13 in the second quarter. So, while there was some good news, lower management fees and an increase in interest caused lower funds.
That said, its portfolio remained strong, with 5.1% same-property net operating income growth compared to 2022 levels. The portfolio remains at a 96% occupancy rate, with a lease expiry of 13.5 years.
So what?
The big “so what” is that while interest rates continue to hurt NorthWest REIT, there is growth coming. Revenue is up by double digits in the quarter, and net operating income growth is also positive about the near future. As the company adjusts to new interest rates, it seems that it will be a relatively simple process to get out from under its debt.
In fact, NorthWest REIT now looks quite valuable. Shares trade at just 7.42 times earnings, well below its former levels, with a price-to-book ratio at just 0.73. While its debt-to-equity ratio is at 102%, it looks like the stock will be able to bring it back down to reasonable levels even by the next earnings release.
With that in mind, is the dividend yield now worth it?
And then some!
Investors might be a little nervous around NorthWest REIT for now, but that’s when other investors should get greedy. I have been drip-feeding into this stock for years, with loads of passive income coming my way.
While NorthWest REIT’s dividend yield may fluctuate, the dividend itself has remained steady and solid. The company continues to use funds to expand its operations on a global scale and has done so for the last several years. In the meantime, there have been no cuts to its dividend, even in the current market environment.
So, as the stock starts to stabilize, up 10% in the last month, we could be at the end of these incredibly low share prices. And that also means the end of incredibly high dividend yields could be coming. Therefore, investors wanting to grab that passive income that’s been so popular these days should certainly consider NorthWest REIT while it’s on the recovery. Because once it’s recovered, that dividend yield is likely to shrink back faster than you could believe.
