Should Investors Buy NorthWest REIT for its 8.2% Dividend Yield?

Passive income is great, and this dividend stock has plenty of it. But is it still too risky for investors on the TSX today?

Amidst the cuts in inflation during this week, there has been another company going through its own cuts. And that company is NorthWest Healthcare Properties REIT (TSX:NWH.UN). The real estate investment trust (REIT) continues to see its potential price target cut by analysts. And even those cuts are still higher than today’s share price, which is at $4.35 as of writing.

What happened?

First off, what happened to NorthWest stock? Shares of the monthly dividend stock hit double-digit status and looked like they would be staying there. However, the company has since lost over half of its share price. So, what’s going on?

There were a few factors impacting the performance of NorthWest stock. First off, the major factor was rising interest rates. REITs, including NorthWest, relied on debt to acquire and manage their properties. Those higher interest rates then led to higher borrowing costs, and this hurt profitability and investor confidence.

NorthWest then went on to be hurt a second time in September 2023, when the company announced a 50% cut in its dividend. The goal was to strengthen the company’s financial health and manage the rising debt it carries. However, this seriously disappointed investors who bought the stock for passive income.

More concerns

There continue to be more concerns for NorthWest stock, even as the market looks to improve and we get closer to rate cuts. First off, the stock would certainly be affected by broader concerns about the healthcare industry in general. This would include more government regulations on a global scale as the company looks to expand further.

And even though the company cut the dividend, debt remains quite high. So, the sale of some Australian assets hasn’t been enough, as it’s still high compared to its peers. This brings up more concerns about how the company will be able to face challenges.

Shares are now down 55% in the last year alone, but is this now looking like an opportunity for a turnaround? After all, even with price target cuts for the stock, consensus estimates have it at $5.54. That provides a potential upside of 27% at the time of writing.

Is it enough?

Let’s be clear. Until NorthWest stock can get a handle on its debt load and strengthen its bottom line, it’s going to be a risky stock. And even when that happens, it will need to gain back investor confidence before turning attention to top-line growth again through acquisitions and expansion.

That’s all to say that there is still a rough road ahead for investors. But if you’re in it for the dividend, I’m not sure that the healthcare stock will drop any further. I say that because shares have remained steady after the dividend cut. Even rising slightly. Therefore, investors may just be biding their time for some good news.

Meanwhile, with an 8.18% dividend yield as of writing, it does look like a good deal. Here is what a $1,000 investment could bring in should shares also hit the price target.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYPORTFOLIO TOTAL
NWH – now$4.37229$0.36$82.44monthly$1,000
NWH – future$5.54229$0.36$82.44monthly$1,268.66

As you can see, you could create $82.44 in dividends and $268.66 in returns. That’s total passive income of $351.10. That’s nice, but is it worth the risk? That depends entirely on your portfolio. As for me, I’d wait for some good news before picking up the stock.

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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