Company Description: Universal Health Realty Income Trust is a real estate investment trust (REIT) that invests in healthcare and human service related facilities.
Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these four calculations of fair value, see page 2 of the linked PDF for a detailed description:
1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number
UHT is trading at a premium to all four valuations above. The stock is trading at a 36.3% premium to its calculated fair value of $28.61. UHT did not earn any Stars in this section.
Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:
1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%
UHT earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. UHT earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1987 and has increased its dividend payments for 25 consecutive years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA) or Treasury bond? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:
1. NPV MMA Diff.
2. Years to > MMA
UHT earned a Star in this section for its NPV MMA Diff. of the $1,124. This amount is in excess of the $1,000 target I look for in a stock that has increased dividends as long as UHT has. The stock's current yield of 6.22% exceeds the 3.1% estimated 20-year average MMA rate.
Memberships and Peers: UHT is a member of the Broad Dividend Achievers™ Index. The company's peer group includes: Hersha Hospitality Trust (NYSE:HT) with a 4.8% yield, Cogdell Spencer Inc. (NASDAQ:CSA) with a 9.4% yield and LTC Properties Inc. (NYSE:LTC) with a 5.5% yield.
Conclusion: UHT did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks UHT as a 3-Star Hold stock.
Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $40.83 before UHT's NPV MMA Differential decreased to the $1,000 minimum that I look for in a stock with 25 years of consecutive dividend increases. At that price the stock would yield 5.9%.
Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,000 NPV MMA Differential, the calculated rate is -0.1%. This dividend growth rate is lower than the 0.4% used in this analysis, thus providing a margin of safety. UHT has a risk rating of 2.25 which classifies it as a Medium risk stock.
UHT's property portfolio includes hospitals, medical office buildings, and child-care centers with mare than half of the firm's square footage located in Arizona, Nevada, and Texas. At 3 Stars UHT is the highest ranked REIT that I hold in my Dividend Growth Portfolio. It's dividend fundamentals, including debt to total capital of 44% are good.
As a REIT, its free cash flow payout is high due to legal requirements of the structure. However, the company had no negative free cash flows over the last 10 years, which is highly unusual for a REIT. I would consider adding to my position when the stock is trading closer to my $28.61 calculated fair value, and as my allocation allows.
Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.
Disclosure: At the time of this writing, I was long in UHT (2.9% of my Dividend Growth Portfolio). See a list of all my dividend growth holdings here.