May has been a very fun month, to say the least! I’ve been a more active investor, I feel, and have made a few purchases actually. The market has been interesting lately, finally a little correction (as it so seems) is taking place and amazing bargain stocks are shedding their heads on the horizon, and damn – do I wish I had more cash sitting around! I made a purchase this month, come and check it out.
Recent Purchase – HCP
To continue with adding to my positions, as I did in DOW Chemical earlier this month, I saw HCP tumble in share price by over 10% this year to date, and actually over 7% in the last 30 days – opportunity I may say? I made a paltry purchase of $258 earlier this year that I didn’t bother to write about, simply because I felt it wasn’t “material” enough (there I go, speaking in public accounting terms again). I made that purchase because I had a free trade that was to expire, so thought – it’s a high yielding, health care REIT that has increased their dividend for quite a bit of time (15 years plus) and the price at the first purchase was around $42.06. Well, that price has changed, for the better.
HCP: HCP Inc. invests in real estate serving the healthcare industry in the United States. The Company is a self-administered real estate investment trust (REIT). The Company acquires, develop, leases, manages and dispose of healthcare real estate, and provide financing to healthcare providers. Thanks google for the information, by the way. Similar to my other “small” positions in the 3 health care REITs I purchased last year, this one is a bigger player with a better track record and completes a great position for healthcare going forward. Like others, I feel healthcare and something especially related to healthcare providers are only going to increase in number, costs and fulfillment of placements, given the longevity of life we have now, and other many, many factors.
But wait, they aren’t on our May Watch list? I know, I know – you can kick my ass! The watch list stocks have been staying put, especially with NSC continuing their decline, as Bert was able to scoop a few more up. So HCP slid back into the radar, why? Let’s look at the numbers:
1. Price to FFO: Instead of using EPS, we are going to use the Funds from Operation here, which Q1 reported at $0.79 per share. Given this and annualizing it out, equates out to $3.16 per share. Purchase price was $39.32, which shows 12.44, not too shabby eh? Fairly low in my opinion.
2. Payout Ratio: To maintain consistency, we will use the annualized FFO of $3.16. Current dividend total is $2.26, therefore, the ratio is looking like 71.5%, which is under the threshold of approximately 90% that the REITs distribute out as dividends – therefore, I feel very comfortable with this percentage for a REIT, it’s not over 100%, which is nice to see.
3. Dividend Growth: Since they are a higher yielder, as you’ll see below, they aren’t like our listing of low yield, high dividend growth stocks we had mentioned in the past. Therefore, there is a trade off with the yield in regards to the dividend growth rate, which I feel is very, very powerful. However, it’s worthy to note they have increased the dividend for over 15 years and the 3 year growth rate is at 4.24% vs the 5 year growth rate at 3.72%. I feel confident this will continue at a 3-6% growth, I don’t mind it given the yield…
4. Dividend Yield: At the purchase date, it was $39.32 with a $2.26 dividend or a yield of 5.75% approximately. Not too shabby and is higher than my overall yield. Also, I feel it’s protected with the cushion mentioned above.
5. Dividend Yield 5 Year Average: I do love this stat, find out why. The 5 year average dividend yield is at 4.90%, therefore, the yield is currently 85 basis points higher, I like it.
Overall Analysis: This is a high yielding, dividend growing (small but still is) within an industry that is only going to gain more transaction than it already has and I made the purchase based on creating a bigger position and finding value within this entity, given a further decrease on price by quite a few dollars from my initial purchase.
Stock Purchase Summary
I deployed a total capital amount of $1,737.03, buying 44 shares (with a fee) of HCP and added $99.44 to my forward looking dividend income. As I talked amongst comments across the blog community, I wanted to develop more round positions for stocks that I own and didn’t want to have “small” positions anymore, similar to my latest purchase into DOW. This nice purchase also allows me to reach closer and closer to my goals for 2015. This purchase was also made within my Roth IRA account.
What does the community think of this purchase? Have you been making moves on health care REITs lately? There’s been a nice pullback – what moves are YOU making? What do you see in the landscape? Thanks everyone, appreciate the feedback!
-Lanny