Should You Buy This 7% Dividend Stock While it’s Below $6?

This dividend stock is still down by 36% in the last year but offers even more growth after taking a year to balance the books.

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There was one solid dividend stock I used to discuss all the time — one that paid out monthly dividends and continued to climb as the company grew both organically and through acquisitions. However, that dividend stock went on to fall as higher interest rates put pressure on the company.

But today, there’s been a rebound — one that has allowed me to reconsider buying up the dividend stock again and again. So, let’s look at why I’m now considering picking up more of NorthWest Healthcare Properties REIT (TSX:NWH.UN).

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Image source: Getty Images

What happened?

Shares of NWH stock flew higher during the pandemic as a push towards healthcare support became paramount. The company seized the opportunity as well to take advantage of lower interest rates, acquiring businesses for a steal.

The problem was that interest rates and inflation rose. Furthermore, the interest in healthcare stocks came to a halt. Rising interest rates and inflation can negatively impact real estate investment trusts (REITs) like Northwest Healthcare REIT. Higher interest rates increase borrowing costs, making it more expensive for REITs to finance new projects or refinance existing debt. Additionally, inflation can erode the purchasing power of rental income, leading to lower returns for investors.

NWH stock then reported lower-than-expected earnings or revenue growth. This disappointed investors and led to a decline in share price. Factors such as increased operating expenses, reduced occupancy rates, or tenant bankruptcies could all negatively impact the company’s financial performance.  And then, the dreaded addition: a dividend cut.

A year of saving

In the last year, management did the responsible thing. NWH stock went further than a dividend cut, selling non-core assets to strengthen its bottom line. This was also done by refinancing its loans and consolidating debts at lower levels.

So, after falling to a 52-week low of $3.89 per share, shares started climbing once more. Shares now trade at about $5.15 at the time of writing. That’s an increase of 32% in a short period of time! What’s more, management believes the worst is over.

During the fourth quarter, management stated that 2023 was about strengthening the business and its balance sheet. The healthcare real estate portfolio has performed well and will continue to do so in a sector that remains resilient and “positioned for growth.” So, now, the constraints experienced in the last year that came from balance sheet leverage are over, and the company can now focus on the strength of its strong real estate and business.

Getting a deal

While numbers are slowly improving, the base is still there. The company holds a 97% occupancy rate and 99% rental collection rate. Its average lease expiry sits at 13.3 years, providing investors with stable cash flow to support the dividend.

Meanwhile, that dividend yield sits at 7.02% at the time of writing — all while trading at an incredibly valuable 7.42 times earnings over the last year as well as 0.62 times book value. So, with shares still down 36% in the last year, a super-high dividend, and growth to come, NorthWest stock looks like a dividend stock that’s worth a second look.

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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