Stock market investing can be tricky to get right, especially if you’re new to the game. For a new investor, it might seem like a waste of time to invest in a company trading at an unusually low valuation. However, a seasoned investor will most likely look at the stock with greater focus because it might be the perfect opportunity to make a lot of money.
Don’t get me wrong; it is only natural to think that it might be better to avoid a stock whose price is going down. However, it isn’t always the right idea. In fact, there are several high-quality dividend stocks that many savvier investors buy, especially when share prices are down.
Today, we are going to take a look at one TSX monthly dividend stock that experienced investors try to buy in bulk when share prices are down: NorthWest Healthcare Properties REIT (TSX:NWH.UN).
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NorthWest Healthcare Properties REIT
NorthWest Healthcare Properties is a Real Estate Investment Trust (REIT) that had been on a stellar run until the Bank of Canada and the US Federal Reserve started increasing key interest rates. As of this writing, NWH.UN trades for $5.11 per share, down by around 53% from its March 2022 high, which was right around the time interest rate hikes began to affect markets.
At current levels, NWH.UN’s $0.03 in monthly distributions translates to a roughly 7% annualized dividend yield.
NorthWest is a $1.3 billion market-cap trust that offers investors exposure to a high-quality portfolio of diversified healthcare real estate. Its portfolio includes clinics, administrative offices, and other healthcare-related real estate. Many of its properties are located in large urban areas of various major geographical markets.
Considering that it operates in high-quality markets, you might wonder why its share price is still struggling to reach previous all-time highs during a time when the rest of the market is experiencing a bull run.
The thing about investing in any stock is to consider its financial health. You should do your due diligence to see whether the company has the kind of fundamentals to support its dividends. The biggest concern for NorthWest over the last five years has been whether its earnings can sustain its high-yielding payouts. A couple of years ago, management slashed the dividends in half to make distributions sustainable.
Whereas its payout ratio was over 100% (meaning that it was distributing more in dividends than it was earning), the second quarter of fiscal 2025 has seen its payout ratio drop to around 88%. This means that the company’s strategy worked and dividends are more sustainable for the REIT.
Foolish takeaway
As interest rates continue to drop, the situation seems to be improving for NWH. The company’s distributions are now covered by its recurring cash flow. Additionally, it boasts a 97% occupancy rate and its portfolio is generating organic rental growth. The average lease expiry is 13.5 years, virtually guaranteeing recurring cash flows for years to come.
Investing in its shares might still be risky due to macroeconomic factors affecting its financial performance in the short term. However, it looks well-positioned to be a cash cow that long-term investors can rely on to generate a passive income.
