REIT Stock Pays 4.6%, Strong Portfolio, Very Good Dividend Coverage

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Achilles Research
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Summary

  • Healthcare Trust of America is a promising long-term income vehicle.
  • HTA is a long-term play on rising costs in the healthcare sector.
  • Healthcare Trust of America has an investment-grade rated balance sheet and robust dividend coverage stats.
  • However, shares are about fairly valued, in my view.
  • The dividend is growing and an investment in HTA currently throws off a 4.6 percent.

Healthcare Trust of America, Inc. (NYSE:HTA) is a promising REIT income vehicle in the healthcare sector. The real estate investment trust is poised to profit from an aging population, rising healthcare costs in the U.S. economy, and shifting patient preferences. Healthcare Realty Trust of America has a moderate FFO-payout ratio and a robust margin of dividend safety. Shares are about fairly valued, though, and an investment in HTA yields 4.6 percent.

Healthcare Trust of America - Portfolio Overview

Healthcare Trust of America is poised to profit from higher healthcare spending in the coming decades. The U.S. population is aging at a rapid clip and older people spend more money on healthcare services. With healthcare costs already on the rise, healthcare REITs such as Healthcare Trust of America benefit from demand growth going forward.

Source: Healthcare Trust of America Investor Presentation

In addition to an aging population, patient preferences have begun to change. Inpatient admissions are down dramatically while demand for outpatient healthcare solutions is growing.

Source: Healthcare Trust of America

Healthcare Trust of America benefits from these trends through its portfolio of medical office buildings that are spread out all over the United States. The REIT's property portfolio consists of ~$7 billion in gross real estate investments representing 24 million square feet.

Source: Healthcare Trust of America

Medical office buildings account for the lion share of real estate in Healthcare Trust of America's property portfolio (~95 percent). The remainder is made up of hospitals and other healthcare facilities. The company's most important market is Dallas, Texas, which accounts for ~12.1 percent of the REIT's investments.

Source: Healthcare Trust of America

Strong Balance Sheet With Moderate Leverage

Healthcare Trust of America has an investment-grade rated balance sheet. Standard & Poor's rates Healthcare Trust of America's balance sheet BBB and Moody's rates it Baa2.

As far as leverage is concerned, Healthcare Trust of America's debt accounts for just about 1/3 of the company's total capitalization. In addition, HTA has no significant near-term debt maturities coming up.

Source: Healthcare Trust of America

Dividend Stats

When it comes to Healthcare Trust of America's dividend coverage, income investors can sleep well at night.

The healthcare REIT pulled in $0.41/share, on average, in normalized funds from operations in the last seven quarters, widely outearning its dividend rate of $0.30/share (average dividend rate over the last seven quarters). Healthcare Trust of America's dividend coverage ratio averaged a 135.2 percent, leaving plenty of room on the table for real estate investments and dividend growth.

Source: Achilles Research

Importantly, Healthcare Trust of America is growing its dividend, which can't be said of all MOB REITs.

ChartHTA Dividend data by YCharts

Probably About Fairly Valued

Healthcare Trust of America's shares currently change hands for ~16.3x Q1-2018 normalized FFO which makes HTA about fairly valued, in my opinion.

Your Takeaway

Healthcare Trust of America is poised to profit from the trends described in this article: An aging U.S. population (with an associated increase in healthcare costs) and a growing shift away from inpatient facilities to outpatient medical centers. Both trends support the investment thesis. Healthcare Trust of America has a strong, investment-grade rated balance sheet and robust dividend coverage ratios. The dividend is growing, but shares are about fairly valued. Buy for income.

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This article was written by

Achilles Research profile picture
34.87K Followers
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.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

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