Earn A 7%-Plus Yield From This Biotech And Healthcare High Dividend Stock

| About: Alexandria Real (ARE)

Looking to profit from an industry with a strong positive trend, but still collect dividend income along the way?

Biotech stocks had major gains in 2013. For example, the iShares Biotech ETF (NASDAQ:IBB) gained around 60%. But what about dividends? A screen for biotech dividend paying stocks turned up 6 dividend paying stocks in this industry, 5 of which have low dividend yields.*

Occasionally, our articles cover stocks with multiple dividend payouts and that's the case with this week's focus stock. It offers 3 dividend yields - a common, yielding over 4%, and 2 preferreds, yielding over 7%.

Founded in 1994, Alexandria Real Estate Equities (NYSE:ARE) is the largest and leading investment-grade REIT focused principally on owning, operating, developing, redeveloping and acquiring high-quality, sustainable real estate for the broad and diverse life science industry.

We called ARE a "back door biotech/healthcare" high dividend stock because it's the largest US landlord to biotech firms, and offers you a way to collect attractive income from the booming biotech industry.

In addition to biotech firms, ARE's client base is a mix of various types of Healthcare companies:

Although ARE has expanded to Asia and India, its properties are primarily located in life science "brain trust" cluster communities in the US:

ARE's top 20 client list is quite impressive. This list is based on rents as of 9/30/13:

Dividends: ARE'S 6.45% Series E Cumulative Redeemable Preferred Stock, (ARE-PRE), is selling at a 14.6% discount to its $25 liquidation price, and is yielding 7.45%. Ticker symbols for preferred stocks vary on different websites - Yahoo Finance lists this issue as (ARE-PE), while Schwab lists it as (ARE/PRE). ARE had preferred dividend coverage of 4.95x for the 1st 9 months of 2013, vs. 3.73x for the 1st 9 months of 2012.

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ARE also has a Series D Preferred stock, (AREEP), which is yielding around 7%, but it has been callable at $25 since 4/20/13, and it's currently trading above $25.

Tips on buying preferred stocks:

1. Buy cumulative issues - The issuer has to pay you for any missed dividend payments when they call in your shares.

2. Buy at a price below the liquidation preference/call value. For example, even though Alexandria currently has 2 preferred stocks available, the ARE-PRE E series has a much better margin of safety since it's trading at over 14% below its liquidation price of $25.

3. Find preferreds with a call date that's far enough into the future, so that you can collect enough dividends to make the investment worthwhile. ARE-PRE isn't callable until 2017, which gives you at least 12 quarterly dividends before it can be called at $25.

Common Dividend: ARE also pays a quarterly dividend on its common shares. After cutting its dividend in 2009 from $.80 to $.35, ARE has steadily raised it each year since 2010, to its present $.68/quarter, nearly double what it was in 2009. We've added ARE to the healthcare section of our High Dividend Stocks By Sector Tables.

Options: This July 2014 trade for ARE has a $65 strike price, which pays $2.90, over 2 times the $1.36 paid by ARE's next 2 dividends. You can see more details for this and over 30 other call trades in our free Covered Calls Table.

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We've listed the 3 main income scenarios for this trade below:

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We haven't added ARE to our Cash Secured Puts Table yet, as it's below share-price put yields andaren't that attractive at present.

Quarterly Growth Figures: With the exception of Q4 2012 Alexandria has grown its EPS, Revenue and Net Operating Income over the past 4 quarters. Its AFFO growth has been weaker, but its Q3 2013 AFFO of $.99/share covered its common dividend by 1.46x.

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Alexandria benefits generously from rent increases, which in turn supports its earnings and revenue growth. This chart compares 2008 1st quarter base rents vs. 2012 4th quarter:

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Performance: At $21.63, ARE-PRE is only 2.21% above its 52-week low of $21.15, and is 21.12% below its 52-week high of $27.42.

*The exception to the low dividend yields in the biotech screen was the controversial company PDL BioPharma, (NASDAQ:PDLI), which has many articles, pro and con, covering it on Seeking Alpha.

Disclosure: Author was long ARE-PRE at the time of this writing.
Disclaimer: This article was written for informational purposes only.

Disclosure: I am long ARE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I'm long ARE-PRE preferred shares, not ARE common shares.