Sabra Healthcare REIT Inc.: This 9.1% Yield Looks Compelling
Sabra Stock’s Yield Is 9.1% and Growing
To earn bigger yields, you have to get creative.
Blue-chip dividend stocks just don’t cut it anymore. To find income, dividend hunters need to scope out lesser-known niches—like business development corporations (BDCs) or master limited partnerships (MLPs).
Real estate investment trusts (REITs) are one of the last bastions of yield today. These firms buy properties and rent them out to tenants. And because they’re required by law to pay out most of their profits to investors, it’s not uncommon to find REITs paying yields as high as 12%, 15%, or even 17%.
One of my favorites: Sabra Health Care REIT Inc (NYSE:SBRA). The partnership doesn’t have the biggest following among income investors, but with a 9.1% yield and growing distribution, this could become one top dividend stock over the next decade.
Sabra owns a collection of specialty hospitals, transitional care facilities, and senior housing nationwide. Thanks to America’s aging population, these businesses enjoy high rents and low vacancy rates.
As a result, the partnership stands on a firm financial footing. Over the past 12 months, Sabra generated $2.31 per unit in adjusted funds from operations (AFFO) and paid out $1.73 per unit in distributions. This 75% payout ratio leaves management with plenty of wiggle room to keep making payments even in the event of a downturn.
That payout will likely continue to grow. Each year, 365,000 baby boomers turn 65; that’s larger than the population of Honolulu. With the demand for healthcare services exploding, rental prices for specialized medical facilities continue to grow.
Sabra has found itself right in the middle of this boom.
Over the past few years, management has plowed millions of dollars back into the business. This includes a number of growth initiatives, such as acquiring new buildings and renovating existing ones. Analysts project that these projects should allow the partnership to grow its cash flows at a high single-digit clip over the next five years.
Most of these profits get passed onto unitholders. Since Sabra Healthcare began paying distributions in 2011, executives have boosted the payout on a regular schedule each year. As you can see in the chart below, those small, steady increases have created quite the stream of income.
(Source: Yahoo! Finance, last accessed August 10, 2018.)
The only thing that could upset this growth story would be higher interest rates.
That’s because REITs fund most of their business by borrowing copious amounts of cash. If interest rates rise, that would slow their pace of future acquisitions and, by extension, future distribution hikes.
That said, Sabra’s light debt load positions it well in a higher-interest-rate world. Soaring healthcare spending should also allow the partnership to grow earnings organically through rent hikes.
For those looking for a big upfront yield, Sabra Healthcare is one name to look into further.
Dear Reader: There is no magic formula to getting rich. Success in investment vehicles with the best prospects for price appreciation can only be achieved through proper and rigorous research and analysis. We are 100% independent in that we are not affiliated with any bank or brokerage house. Information contained herein, while believed to be correct, is not guaranteed as accurate. Warning: Investing often involves high risks and you can lose a lot of money. Please do not invest with money you cannot afford to lose. The opinions in this content are just that, opinions of the authors. We are a publishing company and the opinions, comments, stories, reports, advertisements and articles we publish are for informational and educational purposes only; nothing herein should be considered personalized investment advice. Before you make any investment, check with your investment professional (advisor). We urge our readers to review the financial statements and prospectus of any company they are interested in. We are not responsible for any damages or losses arising from the use of any information herein. Past performance is not a guarantee of future results. All registered trademarks are the property of their respective owners
Sign up to receive our FREE Income Investors newsletter along with our special offers and get our FREE report:
5 Dividend Stocks to Own Forever
This is an entirely free service. No credit card required. You can opt-out at anytime.
We hate spam as much as you do.