A TFSA Pick Yielding 6.2% With Dependable Cash Payments

Vital Infrastructure Properties is a top TFSA stock that’s benefitting from strong industry trends in healthcare real estate.

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published July 27, 4:20 pm EDT

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Key Points

• Vital Infrastructure Property Trust yields 6.24% monthly and benefits from the aging population trend, with occupancy rates over 96% and a weighted average lease term exceeding 12 years.
• The company is improving its balance sheet with $400 million in liquidity and declining debt-to-EBITDA ratio of 8.6 times, expected to improve further as European property sales close.
• Same-store operating net income grew 3% year-over-year to $57.4 million, and Vital is now using its improved liquidity to acquire new healthcare properties in Canada and the U.S.

The tax-free savings account is an ideal way to shelter your hard-earned money from taxes. Since 2009, Canadians have been given more contribution room every year. This year, the cumulative allowable TFSA contribution room is $109,000.

The tax savings that this investment vehicle can generate truly make a positive difference over time, with the benefit compounding every year as tax savings are reinvested. Let’s take a look at a top TFSA pick that’s paying out monthly cash and yielding 6.2% today.

Doctor talking to a patient in the corridor of a hospital. — Source: Getty Images

Vital Infrastructure

As a global healthcare properties owner and operator, Vital Infrastructure Property Trust (TSX:VITL) benefits from one of the most powerful secular trends – the aging population.

Vital Infrastructure reported its first-quarter results back in May. These operating results were solid as they showed continued progress in simplifying the business, lowering costs, and recycling capital. The primary goal today is to pay down debt and improve the balance sheet. As Vital Infrastructure succeeds, the company is becoming increasingly lower risk and generating more consistent returns, making it an increasingly solid TFSA pick for your TFSA contribution room.

Strong demand

Occupancy levels highlight the strong demand that Vital Infrastructure is benefitting from today. In the latest quarter, the company enjoyed an occupancy rate of over 96%. As the population ages and the need for healthcare and healthcare-related services rises, Vital Infrastructure continues to post strong and steady occupancy.

Furthermore, Vital’s portfolio of healthcare assets also benefits from strong and steady leases. In fact, at this time, Vital’s weighted average lease term is over 12 years, the longest in the REIT sector. This brings with it stability and resiliency of cash flows.

Strong balance sheet

Vital’s results show an improving trend toward greater financial liquidity and flexibility, as well as steady and growing operating income.

For example, the company’s balance sheet shows $400 million of liquidity and a debt balance that continues to decline. In fact, the company’s debt-to-earnings before interest, taxes, depreciation, and amortization (EBITDA) was 8.6 times. This was down from 8.7 times in December. The company fully expects this ratio to continue to improve as the sale of its European properties closes.

The weighted average interest rate of this debt is currently 4.8% with over 86% of debt fixed or hedged. The term to maturity is two to three years. This improving debt situation continues to gain traction.

Today, the company is starting to use its newfound liquidity to snatch up some new opportunities. For example, Vital recently closed on an outpatient clinic property near the Ottawa hospital. This property will generate a long-term, secure income stream for Vital. Over and above this, the company is also negotiating the purchase of different U.S. critical health care assets.

Strong operating results

Finally, same-store operating net income came in at $57.4 million in the quarter, which was 3% higher than the same period last year. This was driven by rent escalation and continued efficiencies.

The bottom line

Vital’s health is improving quarter by quarter. Debt is falling, its payout ratio is strengthening, and its liquidity is improving. This translates into an increasingly reliable dividend for this TFSA pick.

Consider dedicating a portion of your TFSA contribution to Vital Infrastructure for its generous dividend yield.