NorthWest Healthcare Properties REIT (TSX:NWH.UN) is a stock that I’ve held for some time. And honestly, even after all the share price drops, I’m not about to sell. The company continues to provide a strong reason to stay with a healthy dividend, after all. But with all those share drops, the question is whether I should buy more.
Today, let’s look at what to consider if you’re also thinking of buying more of NorthWest stock. So, let’s get right into it.
That dividend
The main reason many investors are getting into NorthWest stock is because of its high dividend yield. That currently is at 8.02% as of writing. However, it used to be far higher. That’s because the company cut the dividend by more than half earlier in the year. It used to be at $0.80 per share annually and has since been lowered to $0.36 per share on an annual basis.
Along with this, shares have dropped significantly. NorthWest stock used to trade around $10, but it is now falling to about $4.50 as of writing. That’s a decrease in share price of 55% and something to be considered when buying for a dividend.
That’s because, right now, the company’s payout ratio does not look stable. Companies should offer a payout ratio between 50% and 80% to maintain a healthy balance of providing attention to the dividend while still expanding. Meanwhile, NorthWest stock holds a ratio of about 300%! This means far too much cash is going to the dividend.
Earnings clues
After the news of a cut dividend, shares fell. NorthWest stock then got into the company’s overall earnings and what it’s doing to strengthen the company once again. During third-quarter earnings, it saw positive revenue growth and same-property net operating income. The stock also secured a new $140 million term loan.
That pretty much sums up the good news. Overall, the stock is really trying to focus on ways to strengthen its balance sheet. It’s been successful so far in refinancing and extending debt obligations. This has included extensions, refinancing, and selling off non-core property assets. These sales have included $181 million in non-core assets and $110 million in sales of its Australian real estate.
Meanwhile, its portfolio occupancy remains stable at 96%, with its net income improving to a net loss of $116.4 million in the quarter. The company stated this came primarily from fair-value losses on investment properties.
Too much, too fast
So, why did this all happen in the first place? NorthWest REIT fell into the trap of growing too much, too soon. The company kept its dividend pretty low in the hopes of using all cash to expand on a global scale. And it seemed safe at the time!
That’s because NorthWest stock invests in healthcare properties. These include hospitals, healthcare facilities, doctors’ offices, and even parking garages. All that seemed secure, and it was! The problem was that when the market fell, inflation rose, as did interest rates, and the company no longer had the cash to keep it all going.
That led to a cut dividend and falling share price. So, the big question: is it a buy now? Probably not. While I’m not going to sell my shares in NorthWest stock right now, as it’s due to come back eventually, it’s also in a pretty precarious position at the moment. If you’re looking to start a stake, I would certainly wait until more good news comes that will strengthen its balance sheet.
