Taking It Slow: Brookdale Senior Living

Brookdale Senior Living is an operator of homes for old folks in the U.S., with over 380 facilities in 31 states. BKD was formed in 2005 through a merger of Brookdale Living Communities with Alterra Healthcare Corporation. There was an IPO of BKD stock in November 2005. In July 2006, BKD acquired American Retirement Corporation; in December 2006, Brookdale acquired 30 properties from Nationwide Health Properties Inc. The current market capitalization of this company is 4.8B. BKD claims in an online help-wanted ad that they have become the largest senior living provider in the U.S.

Brookdale wants to grow by acquiring additional senior living properties. If they succeed, cash flow and profits could rise significantly over time. BKD just increased the quarterly dividend from .40 to .45. The dividend has increased 80% since the IPO. The shares currently yield 3.37% and I estimate the beta of the stock is 1.00.

Now I am no accountant, but a quick scan of the key statistics at Yahoo! Finance shows that profitability is negative at present and cash flow appears inadequate to cover dividend payments. But the results of recent acquisitions may not be fully reflected in the data, and perhaps cash flow is increasing so rapidly that there will not be a problem.

The shares are up more than 50% in the year they have been trading, certainly a promising trend. But BKD hasn’t been around long enough to see how the stock may behave during a general market correction. Company insiders have made significant investments in their own stock, but not lately. I am interested in BKD but there are a couple of red flags here so I’m going to watch it a while before jumping in.

BKD 1-yr. chart