Last week, I turned some free cash from Scottrade into some dividend cash flow. Thats right, I earned 200 dollars from Scottrade through the "special" that just ended for transferring my stocks from my old Charles Schwab account to my new Scottrade account. Additionally, I earned 50 free trades. I also used one of these to make the purchase.
Today, I bought 10 shares of Healthcare Properties Investors, Inc for a cost basis of 335.66 dollars. It increases the number of REITs in the Financial Independence Fund, but adds a new dimension in the healthcare division. It has a relatively high dividend yield of 6.9 percent, in addition it boasts a long history of dividend increases which is regarded as highly favorable with this sector.
<strong>I purchased 10 shares of Healthcare Property Investors, Inc on 04/22/2016 for 33.56 per share.</strong>
<strong>Summary </strong>
HCP, Inc. is a fully integrated real estate investment trust (REIT) that invests primarily in real estate serving the healthcare industry in the United States. HCP's portfolio of assets is diversified among five distinct sectors: senior housing, post-acute/skilled nursing, life science, medical office and hospital.
A publicly traded company since 1985, HCP: (I) was the first healthcare REIT selected to the S&P 500 index; (ii) has increased its dividend per share for 31 consecutive years; (III) was the first REIT included in the S&P 500 Dividend Aristocrats index; and (iv) is recognized as a global leader in sustainability as a member of the Dow Jones and FTSE4Good sustainability indices, as well as the recipient in three of the past four years of both of the GRESB Global Healthcare Sector Leader and the NAREIT Healthcare Leader in the Light Award.
<strong>Healthcare Property Investors, Inc (HCP) Fundamentals </strong>
Healthcare Property Investors, Inc is rather a solid, diversified REIT with a recent slump due to a few situations which have unfolded over the last year or so. One the major reasons why the stock plummeted last quarter and the previous quarter was due to the Department of Justice investigation with medicare fraudulent claims at the HCR Manorcare facilities. This is HCP's largest tenant, therefore outcome uncertainty drove the cost per share downward. Furthermore, the recent hype of raising US interest rates, which in turn would slow any expansions the REIT may pursue. These coupled together has reduced the stock price over 10 percent over the last few quarters.
The revenue growth put forth by the company has increased over the last few years at a pretty rapid pace. It went from $1.8 billion to $2.6 billion from 2013 to 2015. The revenue should continue rising in the the coming years as the REIT expands and diversifies and as the baby boomers begin to need more acute/skilled nursing care.
Gross profit margins declined over the last few years. Dropping from around 85 percent to 75 percent since 2013. Thats almost a 10 percent drop in gross profit margins in a two year span. It is something to take note of, but its nothing to raise an eyebrow at. It's assets have increased from 17 billion to 21 billion over the last five years.
Earnings per share, however, was a surprise to the general consensus in all of 2015 and early 2016. Earnings per share at last report was $0.80, up from $0.79, which is a 1.27 percent gain. The revenue generated in the last quarter was 668 million up from the forecasted 6.38 million.
Healthcare Property Investors, INC , is still a dividend aristocrat, which will impress any investor in the long term game of dividend reinvestments. Moreover, the stock has increased its dividend for the past 31 years, which is remarkable. Another great attribute that the stock offers is a nice dividend of $.575 cents per quarter. The current ratio or liquidity ratio is 2.19 which is relatively low and indicates that HCP has good financial strength to pay short term financial obligations. This value means HCP is above 79 percent of the other healthcare related REITS in this regard. The current dividend yield is around 6.9 percent.
Profitability metrics are slightly lower than the sector. Currently, the firm has averaged a net margin of -89 percent and return on equity of -24.5%. At the time of the post, these values appear lower than the sector averages, but in the coming years I see these values stabilizing as debt is paid, higher growth rate of facilities and an increased elderly population.
<strong>Qualitative Aspects</strong>
For sometime now, I have been wanting to add a health care REIT in my portfolio. I have been debating between HCN, HCP or LTC. Eventually I hope to add all three of these, but for now with limited funds I will only add HCP. Lets talk about HCP...
First, HCP is a highly diversified REIT. Its portfolio includes:
-Hospitals
-Senior housing
-Post acute/Skilled nursing
-life sciences
-Medical Offices
Second, HCP is expanding and acquiring more locations in the U.S. and other countries including United Kingdom.
Third, HCP will eventually pay down debt in a few years (decreasing the debt to income ratio), while acquiring more locations. Moreover, the aging baby boomers will need more of the facilities which should increase revenue.
Fourth, People will always need health care/facilities due to illnesses, immobilization etc
<strong>Risks</strong>
Healthcare Property Investors, Inc is a healthcare related real estate trust. For the most part it is fairly stable considering its in the healthcare industry. HCP operates with huge debt, however, with the steady increasing populations and expansion projects implemented, HCP should continue to be highly profitable. A few things that can jeopardize the stock would be audits from the Federal Justice Departments, lower reimbursement rates, shorter stays due to technology i.e. medicines, surgeries. Also, rising interest rates or extremely high inflation rates which are unlikely at this point in time would damper expansion efforts.
<strong>Valuation</strong>
Healthcare Property Investors, INC P/E ratio is relatively low, but the good news is this doesn't tell the entire story because it's a REIT. Therefore, lets analyze the FFO value. This value looks at funds from operations; or should we just say cash flow from operations. The FFO value in 2016 was 2.74-2.80 which is a decrease year over year from the projected 3.17. Thats a slight decrease over the last year which is a result of new reimbursement models being implemented and shorter length stays in nursing/hospital facilities.
<strong>Conclusion</strong>
Overall, I think Healthcare Property Investors Inc, is a REIT with a proven track record. I chose this company because they have increased dividends for over 30 years, while increasing assets and revenue simultaneously. Even though there are shorter length stays, lower consensus, and new reimbursement models being implicated, I think HCP still has a strong hold in every investors portfolio. A few aspects which make this stock very attractive is the future of the company; namely the increasing baby boomer age and higher health care costs which should reap huge profits for the REIT.
These purchases add $5.75 to my quarterly dividend income or $23 to my annual dividend income based on the current $0.575 quarterly dividend.
Full Disclosure: Long HCP
Some values are approximations
I used a free trade/free $200 dollars from Scottrade which lowers cost basis. I have 47 free trades left.
Sources:
www.gurufocus.com/term/pfcf/HCP/Price-to...
www.zacks.com/stock/news/206753/hcp-q4-f...
Please subscribe and let me know what you think? Do you own HCP? Would you buy HCP? Why or Why not?
LOMD