Lanny’s Recent Stock Purchase – HCP, Inc. (HCP)

Wow… I can’t believe I still remember how to buy stock!  It has been almost 2 months since my last stock purchase, when I purchased shares in AT&T (T) and Hormel (HRL) back in October.  Can I say that it feels good to be back?  I couldn’t help but sit on the sidelines, as during that two month period, the S&P 500 index has increased well over 4%+ during that time period.  My dividend stock portfolio has been bolstering record-highs and finding opportunities out there has been difficult, to say the least.  The stock I purchased has not moved in that two month span, and when dating back to three months ago, is actually down 10%.  On December 21st, I purchased 58 shares into HCP, Inc. (HCP) and let’s dive in to see why!

The Stock – HCP, Inc. (HCP)

News has been fairly quiet on our friends, HCP, as of late.  This definitely isn’t the first time I’ve purchased them, either.  I did happen to purchase them two times in the year 2015, last being in November at a share price of $34.10!  This was obviously pre-QCP spin-off that occurred, shrinking down the clientele of HCP, as they dissolved an unprofitable segment in their portfolio.  More background for those of you who do not know HCP, “The Company acquires, develops, leases, manages and disposes of healthcare real estate and provides financing to healthcare providers. The Company’s diverse portfolio is comprised of investments in the following reportable healthcare segments: (i) senior housing triple-net; (ii) senior housing operating portfolio (“SHOP”); (iii) life science and (iv) medical office.”  This information was taken from their recent 10-Q fling.  What has happened in the two years since then?  I’ll break it down:

1.) Spun-off QCP in 2016, which held 338 properties, that has caused a decline in top-line revenue and a decline in the dividend from $0.575 to $0.37/share per quarter.  This decline was due to providing shareholders shares of QCP, to replace the decline in dividend.

2.) Revenue has started to improve, still lagging 2016 results (which still include QCP properties)

3.) Occupancy remains high from the mid-80% range to mid-90% range

4.) FFO Adjusted to be approximately $1.94 per their press release

5.) Big Bert also had them on his dividend stock watch list for December

So why did I buy them?  Well, the decline has been substantial in two years, including the spin-off.  Further, healthcare will always be here and facilities are needed for the individuals.  Next, the corporate tax rate announcement should add further earnings for HCP, however, this is offset by the impact/reduction of the deferred tax asset.  Lastly, I believe with FFO increasing, that dividend increases will be back on the fore front.  Let’s place them through the dividend diplomat stock screener, and use FFO instead of EPS. 

Dividend Diplomat Stock Metrics

1.) Funds From Operations (FFO) – For Real Estate Investment Trusts, we use the FFO to evaluate whether a REIT is under/over valued, as well as for the dividend payout and the like.  To Note – REITs must pay 90% of their income to shareholders.  The expected FFO for the year is $1.94.  At a price of $25.59, this equates to a 13.19 FFO ratio, if that’s what we can label this.  To me, this is signs of undervaluation.  To compare, Realty Income (O) expects FFO of approximately $3.00.  Their share price is $55.25 equating to an FFO ratio of 18.42.  Therefore, HCP is looking better at this time!

2.) Dividend Yield – HCP currently pays $1.48 per year or $0.37 per quarter.  At the time of purchase, the yield calculated out to be 5.78% (dividends divided by share price).  This is far above my average dividend yield in my portfolio, by a long shot.  If I purchased this in my taxable account, the dividends would be taxed at my ordinary income rate.  However, I have purchased this in my Roth IRA, therefore, am able to not take the tax hit of these dividends.  This is something I recommend other readers or at least for them to consider/keep in mind.

3.) Dividend Growth Rate –  Sadly, they will have to start back at year 0 in this department.  This was painful to see, as they once were a dividend aristocrat even!  However, given this was primarily due to the spin off of QCP, I am looking forward to HCP being back in the dividend growth arena.  However, how does it look for them to be able to do that?  The next step will tell you.  However, before going down to the next item, find out why the dividend growth rate is extremely powerful.

4.) Dividend Payout Ratio – As discussed in #3, this is important if HCP wants to hop back on the saddle to grow dividends again.  The dividends paid per year amounts to $1.48.  From #1, their FFO for 2017 (expected) is $1.94.  The dividend payout ratio equates to 76% (1.48/1.94).  What does this mean, as it doesn’t fit the 40-60% range I like, correct?  Let’s do the same comparison to Realty Income, again, as we did in #1.  Realty Income produces $2.55 in dividends.  Their FFO is expected to be $3.00.  Therefore, this is 85%.  I will conclude by saying HCP’s payout ratio on FFO is not alarming, and in fact – does show that they can continue to grow their dividend further, as typically you do see in the 80% range, no doubt.

To show proof of the purchase:

I purchased $1,484.22 worth at $25.59 per share for a total of 58 shares, with a $0.00 trading fee (love free trades).  This added $85.84 to my forward dividend income.  I now have over 138 shares with this stock purchase of HCP, which pumps out $205 in dividends per year.  Currently, each quarter will allow me to almost pick up 2 full shares if price stays in this $25 range.  What I am very curious about is whether HCP continues back to increasing their dividend in the first quarter, as they used to.  Very excited on this add to my current position of my portfolio

HCP, Inc. (HCP) Stock purchase summary & conclusion

Buying more HCP was a nice pad to my portfolio as I approach the end of the year.  Further, based on the performance discussed above, I am very excited about the dividend growth potential for the entity.  I will begin to feel the dividend beginning in February of 2018, so only a little bit of time away (unless they throw a curveball again and pay in March).

Now onto the readers, what do you think of this dividend stock purchase?  Do you like it?  Are you staying away from Healthcare?   Are you unsure if you should be buying in this market, as of right now?  Would you buy HCP at this price?  I appreciate the feedback and insight you have on this investment decision!  Thank you again, everyone, good luck and happy investing!


17 thoughts on “Lanny’s Recent Stock Purchase – HCP, Inc. (HCP)

  1. Nice summary and a good purchase! Thanks for also including your metrics and analysis approach – very thorough.

    Regarding HCP, as shared recently with Bert, I haven’t followed primarily because our REIT exposure (which is ~25% of our current net worth) is currently in an index fund, but HCP is a current holding though.

    Thanks again for the post, Lanny.

  2. Nice buy and writeup Lanny. I dont know much about the company but you sound like its on the ups. I like healthcare alot right now as the baby boomers age. As for the market, like you im in no rush to buy at the moment. If i find or see a deal ill jump on it but right now ill just enjoy the holidays.

    • PCI –

      Agreed, no rush to buy stock, given current valuations – but the new tax reform could change a few things. HCP is a big player in the healthcare REIT realm and believe they are poised to be strong going forward. Thanks for the comment, as always!


  3. Lanny –
    Nice buy, i was expecting this purchase from you, since it was on your watch list plus REIT’s and utilities have been going down the last 3-4 sessions. Nice addition to the yearly income 🙂
    I am torn between VTR and O right now.

    • Desi –

      Thank you for the comment. You got it, tried setting the stage and pumped to add this almost 6% yielder to the Roth account!!

      And VTR or O – can’t go wrong. Love O’s dividend streak, that’s for sure.


  4. Hi Lanny,

    really like your purchase of HCP. I don’t own shares of HCP, but they are on my radar. REITs in general were “punished” after the tax bill passed and i think it’s a good opportunity to buy into this sector. I own OHI and Welltower and right now i tend to add some shares of Welltower.

    I just purchased Red Electrica and sold Qualcomm. If you have the time you can check out my blogpost on the portfolio reconstruction:


    • Solutions –

      Very good, very good – OHI is very popular amongst the dividend community : )
      I will have to check your article out, as I’ve never heard of Red Electrica. Always fun to learn a new company and see what’s the blood behind what they do!


  5. Nice purchase Lanny! This buy provided a nice bump to your dividend income. I feel I am a bit REIT heavy in my portfolio so I am a bit standoff-ish right now, though I can see myself own O at some point in the future. Thanks for sharing. 🙂

  6. HCP is one of my potential buys for December and quite frankly a lot of the health REITs are looking a lot more attractive these days when compared to just last summer. Names like VTR, HCN, LTC, HCP and others are severely beaten down. Nice pick up!

    • Hut –

      Nice, I have also taken a look at others. Wanted to add to my current position, before starting a new one. Looking forward to hopefully this being a REIT beast in the Roth! Thanks again Hut, talk soon.


    • Seedling –

      Great to hear. After the spin-off and clean up of this year, they are setting themselves back up for dividend growth and being a strong performer. Very excited for January/February this 2018!!


  7. Nice, always good to add to a position you already own if you still like the valuation! I’ve been looking for some individual REITs to add to my portfolio but haven’t pulled the trigger yet and all of my REIT holdings remain in an index.

    • Time –

      Appreciate the comment and also glad that it ended up towards the end of 2017. Still a few days left for us to consider further capital investment, as long as valuations are in our “right” peripherals. Hope you enjoy the next couple of days, talk soon!


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