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Is 6.7%-Yielding Welltower Inc. A Buy Right Now?

Mar. 01, 2018 12:51 PM ETWelltower Inc. (WELL)18 Comments
Achilles Research profile picture
Achilles Research


  • Welltower Inc. is a promising health care REIT.
  • Fundamentals in the health care REIT market are intact, and Welltower continues to cover its dividend payout with cash flow relatively easily.
  • Shares now sell for a reasonable run-rate FFO multiple.
  • An investment in WELL yields 6.7 percent.

Welltower Inc. (HCN) is no longer at the top of investors' shopping lists, which I think creates an interesting buying opportunity because the company continues to perform well. The fundamentals in the health care REIT sector are intact, and Welltower's dividend is covered by recurring cash flow. Thanks to the sell-off in the REIT's shares, an investment comes with an entry yield of 6.7 percent.

Welltower's shares have dropped ~18 percent year-to-date as investors moved money out of dividend-paying stocks. Surging bond yields and expectations of higher inflation in 2018 were the primary reason why income investors rotated out of stocks in February 2018. Meanwhile, Welltower's shares slumped to new 52-week lows in 2018 (@$51.85).

Investors have no love for REITs right now.

Source: StockCharts

Welltower - Fundamentals Are Intact

Though the REIT's shares have dropped lately, the long-term fundamentals in the senior-focused health care market are intact. The U.S. population is aging rapidly, and the 85+ age cohort especially is growing at a fast clip. Obviously, the 85+ age cohort is the most attractive age demographic for health care REITs as people in this age group disproportionately require living assistance and medical services.

Source: Welltower Investor Presentation

In addition, the 85+ age cohort spends by far the most money on health care than any other age group.

Source: Welltower

Welltower is set to profit from these two powerful trends - an aging U.S. population and increasing expenditures on health care services - through its portfolio of health care facilities.

Welltower - Portfolio Overview

The vast majority of Welltower's portfolio today consists of senior housing facilities, which make up 71 percent of the REIT's net operating income. Outpatient medical facilities and long-term/post-acute care facilities account for 17% and 13% of NOI respectively.

Source: Welltower

Welltower's senior housing portfolio is spread

This article was written by

Achilles Research profile picture
I am a dividend investor and look for undervalued investments in the stock market. I identify misunderstood and undervalued equity investments and hold those securities until their price approximates my estimate of intrinsic value. I am a long-term investor only. I am building a $100,000 high-yield income portfolio. I am running this portfolio as an experiment to see if long-term sustainable income can be generated from a diversified pool of high-risk, high-yield securities. I am willing to accept high risk in order to meet my performance goals.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in HCN over the next 72 hours. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (18)

I own it. I like it at these prices. Searching the sofa for more $$ to purchase next week.
mostserene1 profile picture
Long WELL, but Fidelity is Very Bearish, and several analysts have dropped coverage of WELL or changed from hold to sell. I could not find a written explanation of why this stock is hated.

I will continue to analyze and maybe add to my position. Maybe analysts are down on all REITs given upcoming rate hikes. Who knows?
thorgood4 profile picture
what is reasonable value? will it be more reasonable after the next hike?
thorgood4 profile picture
Value is a rolling metric - how you interpret data and your time frame speaks volumes.
John_Tierney profile picture
The equity is undervalued! My biggest loser.
WELL, may have another drop coming (3-4 dollars ) , BUT a very solid Blue Chip investment , based on facts of demographics and string management ! Thanks fro a great article !
"right now"...??
Is this a millennial hang out? best to skip the trendy-speak...
DividendBug profile picture
"Because of the changes that we made, the asset quality, the improvement in the balance sheet and the strong cash flow from the decisions we made to improve the overall quality of the business, the dividend has never been more secure."
–Tom DeRosa, CEO, during the Q4 Earnings Call on Feb 24, 2018

Hope you are right. Have held for over 20 years;bought HCP at tge same time and look at what has happened to them. Holding and watching.
Impressed with Well Towers 50% growth in private pay in the medium term ; that's very unusual for a large company .
I know I’m thinking the same thing , I bought at 59 and I thought that was cheap now it’s 52 do I buy more or just hold and hope they come up again eventually?
Vladimir Teleborg profile picture
On March 21 next rate hike is expected, i would wait these 3 weeks at least before any add
tikigod18 profile picture
So a name change makes the difference in value? They don't seem too "well" to me. In the end, if you hold long enough, you will lower your cost basis through dividends invested at lower prices, but what a way to "break even"
so why don't you tell us what the magic price to buy is o great one?
look at the long term charts WELL , is a great investment in demographics !
They just changed their ticker symbol to "Well"
tikigod18 profile picture
Shares now sell for a reasonable run-rate FFO multiple.

So when you wrote last November, "This 5.1%-Yielding Health Care REIT Is A Strong Buy"
did you believe it sold for a reasonable run-rate FFO multiple then, and if so, why has it dropped to a yield well over 6%?.
WELL over 6%...I see what you did there
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