Collect a Growing Monthly Dividend of 4.7% From LTC Stock
LTC Stock Pays a Growing Monthly Dividend
One sector that all income investors should be bullish on is healthcare-based real estate. The real estate portion provides a consistent revenue source, while healthcare usually entails a necessary product or service that will almost always have a constant consumer base.
One of the more notable healthcare real estate stocks is that of LTC Properties Inc (NYSE:LTC), which invests in senior housing and healthcare properties via sale leaseback agreements, mortgage financing, and structured finance solutions. The portfolio of assets features more than 200 skilled nursing, assisted living, independent living, and memory care properties across the U.S.
Here are three reasons why LTC stock is worthy of consideration as a potential investment.
Strong Business Model
Real estate investments are known for generating wealth over the long term. The industry uses a very simple business model: owning properties and leasing them out to a tenant, then collecting rent each month. On average, LTC’s lease agreements have an initial term between 10 and 15 years, while the current weighted average for remaining leases is 9.4 years. (Source: “Wells Fargo Mid-Atlantic,” LTC Properties Inc, August 2017.)
LTC’s tenants must all agree to a triple net lease. This means that the lessee must pay additional charges for all taxes, insurance, repairs, and maintenance for the property, as well as any other unseen costs that would ensure the property is up to standards. This benefits LTC because it ensures that tenants treat the properties respectfully and that its own staff will not have to spend their time maintaining the locations.
The focus on only leasing healthcare properties makes a more bullish case on LTC stock. For one, the population in the U.S. is growing, creating a need for such facilities. For instance, the population growth from 2014 to 2060 is expected to increase by 30%. More importantly, the senior population, which uses healthcare services more often, is estimated to account for 25% of the total population by 2060, up from 15% in 2014. This will ensure present and increased future demand. (Source: “Projections of the Size and Composition of the U.S. Population: 2014 to 2060,” U.S. Census Bureau, March 2015.)
And the company is aware of said demand. In the second quarter of 2017, LTC acquired 107 unit-assisted living communities, 48 memory care units, and 25 independent living units, all located in California. These properties will have a 15-year lease agreement, with a return cash yield of seven percent. (Source: “LTC Reports 2017 Second Quarter Results,” LTC Properties Inc, August 9, 2017.)
The lower the trading multiple being paid for a company, the more value there is in the investment. This would then be compared to the industry average and direct competitors. This analysis uses the price-to-earnings (P/E) ratio, determined by dividing the current trading price by the company’s annual earnings.
Below is a table with the P/E ratios for LTC and its top competitors, as well as the industry average:
|Company Name||Stock Ticker||P/E Ratio||Market Cap (Billions)|
|LTC Properties Inc.||LTC||21.4x||$1.90|
|CareTrust REIT Inc.||CTRE||42.8x||1.5|
|Tivity Health Inc.||TVTY||32.0x||1.5|
|HMS Holdings Corp.||HMSY||47.3x||1.5|
If LTC stock were to be purchased, $21.40 would paid for each dollar of earnings. For comparison, competitor CareTrust REIT Inc’s (NASDAQ:CTRE) valuation is double that of LTC stock. The same could be said for the overall industry, which currently has a P/E ratio of 42.1 times.
Get Rewarded Monthly
Since LTC’s revenue is steady and very reliable, it is able to reward its investors with a monthly dividend. Currently offering $0.19 per share, the payout would amount annually to $2.28, representing a yield of 4.7%, based on the trading price of $48.70.
To make things more interesting, the dividend is prone to annual increases. Over the past five years, the dividend per share has seen increases between 3.6% and 9.7%, annually. Investors can enjoy these gains without the need to trade the markets and incur any commission costs.
If the increases continue–and they’re likely to–it will be due to the company’s status as a real estate investment trust (REIT), which are known for their big payouts. That’s because REITs are required to put at least 90% of their capital towards dividends in order to not pay corporate taxes. This means any increase in company profits goes partly into the dividend, and with new properties and lease agreements, LTC likely has some profit hikes to look forward to.
Final Thoughts About LTC Stock
The most important part of any investment is the preservation of capital, which is more likely with a cheap valuation. And that’s what you potentially stand to get with LTC stock.
LTC Properties Inc. has very few concerns about its future, since healthcare facilities will always be needed. That helps make it a very unique investment opportunity for those interested in owning real estate.