Are you looking for deep-value stocks to buy for high yield?
If so, real estate investment trusts (REITs) are worth looking into.
REITs are pooled investment vehicles that trade on the stock market. Though their status as “stocks” is somewhat debatable — legally speaking, they’re more like mutual funds — REITs are liquid just like other equities and hold real estate equity. So, for all intents and purposes, they are stocks.
REITs are a good place to look if you’re hungry for yield. In this article, I will explore a beaten-down monthly pay REIT with a 7.2% yield that might just be worth holding today.
Northwest Healthcare Properties
Northwest Healthcare Properties REIT (TSX:NWH.UN) is a Canadian healthcare REIT that invests primarily in healthcare office space. The company owns a number of buildings that house health clinics and healthcare administrative offices. Most of its holdings are in Canada and Europe, where healthcare is largely publicly funded, coming from government tax revenues. This fact means that NWH.UN’s tenants have a very good ability to pay their rents — not always the case with residential REIT tenants!
Performance
Northwest Healthcare Properties has been performing well lately. While the company’s long-term performance over the last three- and five-year periods was fairly bad — hence the beatdown in the stock market — its performance in the most recent quarter may indicate a turnaround. In the first quarter, Northwest Healthcare Properties delivered the following:
- $73.8 million in same property net operating income (NOI).
- $0.1 in adjusted funds from operations (AFFO) per share, up 12%.
- A $15 million net loss.
- 50.4% leverage.
- A 96.5% portfolio occupancy rate.
While the release had some concerning items, such as the net loss and declining revenue, some of these are explained well by the fact that NWH.UN is in the process of selling off assets that have struggled with profitability. Although asset sales come with costs in the short term, selling off unproductive assets increases profit in the long term. So, NWH’s decline in revenue and earnings in the first quarter was not as bad as it looks.
Valuation
Because of the beatdown it has suffered in the stock market, NWH.UN has gotten cheap by some measures. The REIT currently trades at 0.78 times book value, 13.8 times cash flow, 2.67 times rental revenue, and 13.21 times AFFO. These metrics indicate that NWH.UN’s investors aren’t paying too much for the value they’re getting.
Income potential
Last but not least, NWH.UN has a high distribution yield. The REIT pays a $0.03 dividend each month for a $0.36 annualized payout. At today’s unit price of $5.02, that provides a 7.17% yield. If you invest $100,000 in NWH.UN, you’ll get back $7,170 each year in dividends, assuming the payout doesn’t change. Here’s the math on that:
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| Northwest Healthcare | $5.02 | 19,920 | $0.03 per month ($0.36 per year) | $597.60 per month ($7,170.20 per year) | Monthly |
As you can see, there’s a lot of income potential with Northwest Healthcare. Of course, there are risks here too — don’t run out and invest all your money in NWH or anything like that. You might want to consider a small position in a well-diversified portfolio, though. NWH.UN has a lot of income potential.
