Is Senior Housing Properties Trust a Great High-Dividend Stock?
November 2, 2016
Earn More Than 7% from This High-Dividend Stock
Time and time again, the real estate sector is one that pops up on investors’ radars. Real estate has many different ways of earning returns on one’s money; investors should focus on where the future of the specific real estate category is heading.
Senior Housing Properties Trust (NASDAQ:SNH) is one real estate company that fits right into this criteria. Since 2001, the company has been a part of S&P MidCap 400 and the Russell 1000 Index.
Let me explain three reasons why SNH is a top high-dividend stock.
Demographic Shift
The U.S. is about to witness a huge dramatic shift, with a growing population and the retirement community increasing. The projected population is expected to reach 400 million from the current population of 318.0 million. The current population over the age of 65 is approximately 15%, and this number will grow to over approximately 25% by 2060. (Source: “Projections of the Size and Composition of the U.S. Population: 2014 to 2060,” U.S. Census Bureau, last accessed November 1, 2016.)
The baby boomers, who are considered wealthy overall, are the next generation set to retire. A lot of their wealth is due to living through the longest bull market in history. Many retirees will seek accommodations for their needs and wants based on their lifestyle. Senior Housing Properties Trust is perfectly positioned for the inflow of new tenants, with 436 properties around the country.
The move towards senior housing is not a one-generation investment because generation X will get a piece of the wealth from their baby boomer parents due to estate planning. The estimated wealth transfer would be $30.0 trillion, which everyone wants a piece of. Senior Housing Properties Trust would be positioned perfectly in this case as well, because generation X will get a look at the properties when visiting their parents. This is just the first step to building a long-lasting relationship with the family. (Source: “Great wealth transfer will be $30 trillion—yes, that’s trillion with a T,” CNBC, July 22, 2014)
More Than Retirement Homes
Senior Housing Properties Trust is more than a company than serves the retirement community. The company also has a focus on managing and operating medical office buildings, wellness centers, and skilled nursed facilities. These three segments of the business account for approximately 48% of the company’s earnings.
The strategy implanted by management is genius because a tenant will occupy a room in the senior housing facility and when the time comes for medical attention, there will be many opportunities to cross-sell to that tenant. Due to the diversification of the business, shareholders have been rewarded by this high-dividend stock
Rewarding Shareholders
For SNH stock, the current yield is 7.44%, based on the current price of $20.97. The dividend yield does seem high for a tradition blue-chip company, but keep in mind that this is a real estate company that shares the majority of the profits. The current payout ratio is 82%, with the remaining 18% of retained earnings being used to purchase more properties or pay down debt.
With the real estate business, it’s all about managing equity and debt. And with interest rates sitting at record low rates, Senior Housing Properties Trust can generate more cash flow down the road for higher payouts. In the second quarter, there were higher-interest loans coming up for maturity and the timing couldn’t be any better. The loans coming due have a current interest rate of between 4.65% and 6.25%, and in July of this year, a loan was agreed upon with a interest rate of 3.53% through 2026. (Source: “Senior Housing Properties Trust Announces Second Quarter 2016 Results,” Senior Housing Properties Trust, August 5, 2016.)
Final Word on SNH Stock
Whether you’re investing for your retirement or just saving for the future, the retirement business is growing and should not be ignored. With the market and savings accounts not returning much in the form of interest, SNH stock is a great high-dividend stock and more importantly has future growth ahead.
