1 Under-$5 Dividend Stock to Buy for Monthly Passive Income

This monthly dividend stock recently cut its dividend, but now that the worst is over, should investors hop back in on the stock?

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There are a few dividend stocks out there producing incredibly high dividend yields. However, that passive income can come at a price. Such was the case for under-$5 real estate stock NorthWest Healthcare Properties REIT (TSX:NWH.UN).

NorthWest stock fell in half this year, helped along by a slice in its dividend as well. Yet now, with the cut out of the way, and future growth potentially on the way, is this dividend stock a buy once more for monthly passive income?

What happened?

NorthWest stock seemed to fall into that trap that many other stocks on the TSX today fell into. Namely, the trap of growing too fast, too soon. The company looked like it had the world at its fingertips. After all, even during the pandemic, the real estate investment trust (REIT) was doing well. If hospitals and doctors’ offices aren’t essential, then nothing is.

Yet even with long-term contracts keeping the company strong, it was its acquisitions that seemed to hurt the stock. The company used its equity to fund these operations. So, when that equity dropped, it looked like it wasn’t as certain of a future as they hoped.

While it holds essential real estate, there is trouble for NorthWest stock. But just how much trouble?

Earnings look

During the latest earnings report, NorthWest stock reported positive revenue growth and same-property net operating income for the third quarter and year to date. It managed to secure $140 million in term loans to extend its maturities as well.

Now, the company is looking to strengthen its balance sheet. It’s been refinancing and extending its corporate debt obligations. In fact, it looks to eliminate corporate debt facilities before November of 2024. Part of this comes from selling off some assets to help fuel this debt repayment.

Meanwhile, fundamentals were up. Revenue increased 5.1% for the quarter, though net income decreased by $116.4 million. Its occupancy rate remains at 96%, supported by an average lease expiry of 13.2 years as of writing.

What about the dividend?

The thing is, the company also recently made an announcement that upset investors. NorthWest stock cut its annual dividend to $0.36 annually, down to $0.03 per unit monthly. This certainly didn’t impress investors, but this cut will help the REIT manage debt and strengthen the bottom line.

“While a Strategic Review is underway, management and the board have taken key actions in the near term to strengthen the balance sheet and the business…We are working to divest our remaining investment units in Australian Unity Healthcare Fund. To date we have completed investment and non-core asset sales that have generated gross proceeds of $235.1 million, with additional non-core assets being under contract. We remain committed to building on our position as a healthcare real estate leader, focused on creating value for our many stakeholders.”

Craig Mitchell, Northwest’s chief executive officer

So, while the company has some work to do, it also has long-term contracts to get it there. What’s more, management remains responsible in funding the company’s debts. Therefore, if you’re looking for that dividend, now is the time. You can grab an 8.04% dividend yield as of writing, all while paying under $5 per share. And hopefully, it’s only going up from here.

Fool contributor Amy Legate-Wolfe has positions in NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool recommends NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.

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