This Stock Has an 8.2% Dividend and Room to Grow

This healthcare real estate company pays a massive dividend, but is it safe?

Healthcare real estate investment trust Senior Housing Properties Trust (NASDAQ:SNH)pays a dividend yield of 8.2%. Generally, when a dividend looks too good to be true, it is — however, that may not be the case with this one. Here’s a breakdown of Senior Housing Properties Trust’s business, why it could be a great long-term investment, and the risk factors investors should know about.


Senior Housing Properties Trust: The quick version

Despite its name, Senior Housing Properties Trust invests in more than just senior housing. In fact, only 53% of the portfolio is in senior housing. Forty-one percent is in medical office buildings, such as life science facilities and physician offices, and there are smaller holdings of skilled nursing and wellness facilities.

Snh Properties


Its portfolio consists of a geographically diverse collection of 431 properties, and the company is always looking to buy and sell assets to maximize value for shareholders. For example, in the most recent quarter, it sold four medical office buildings and one skilled nursing facility and acquired (or planned to) one medical office building and two senior living communities. In addition, it spent a substantial amount of capital improvements designed to help its existing communities generate more income.

Why invest in healthcare real estate with Senior Housing Properties Trust?

There are a few good reasons to invest in healthcare real estate, and Senior Housing Properties Trust in particular. For one thing, healthcare is a defensive type of real estate, meaning that it generally performs well in good times and bad. Senior Housing Properties Trust has an extra layer of safety, as 97% of its assets are private pay, as opposed to being dependent on government reimbursements. This is one of the highest private-pay percentages in the industry, and this type of asset is often much more stable and predictable.

Furthermore, the healthcare industry is expected to grow rapidly over the coming decades, and the need for healthcare real estate will grow with it. It shouldn’t come as a surprise that older people use healthcare services more than the rest of the population. Well, the population is aging fast. In 2015, there were approximately 47 million people aged 65 or older. By 2030, this number is expected to soar to more than 70 million, resulting in a huge jump in healthcare spending.

Snh Demographics


Additionally, the healthcare real estate industry is in the early stages of REIT consolidation. Less than 15% of all healthcare properties are owned by REITs, as compared with 40%-50% for other property types like malls and hotels. In other words, not only is the industry growing, but there is significant room for growth among the existing supply of properties.

As a final reason to consider Senior Housing Properties Trust, the stock trades at a cheap valuation. As of this writing, shares trade for just 10.4 times trailing-12-month funds from operations (the REIT version of earnings). Other stocks in the healthcare real estate industry trade for significantly higher multiples, such as industry heavyweights Ventas (15.9 times FFO) and Welltower (14.7 times FFO).

Is the dividend safe?

Senior Housing Properties Trust pays one of the highest dividends in the real estate sector. At the current share price, the annual dividend of $1.56 represents a yield of about 8.2%.

The good news is that it appears to be safe. Not bulletproof but safe. The best metric of REIT earnings is funds from operations (FFO), and the company only paid out 82.5% of its FFO as dividends over the past 12 months. (Note: It’s common for a REIT to pay out most of its FFO as dividends. As long as it’s well under 100%, there’s usually no immediate cause for concern.) In fact, the current payout ratio is historically low for the company.

Snh Dividend


The bad news is that unlike most other healthcare REITs, investors haven’t gotten a raise in quite some time. As you can see in the graphic above, the last time the company increased its dividend was back in 2012. It represented a significantly higher payout ratio back then, so a dividend increase wouldn’t be out of the realm of possibilities. However, the point is that if you’re looking for a stock that consistently raises its dividend without fail, look elsewhere.

Risk factors

There are a few major risk factors shareholders should be aware of before investing. Interest rates are a big one, and are the main reason the real estate sector underperformed the market by a wide margin in 2016.

Not only do rising interest rates make it more expensive for REITs to borrow money to finance acquisitions, but they also create downward pressure on REIT shares. When rates rise, investors expect higher yields from “riskier” assets such as REITs. I believe Senior Housing Properties Trust’s high dividend yield would help mitigate this risk, but a spike in rates would likely mean a drop in price.

One company-specific risk factor worth mentioning is debt. As of the end of the third quarter, the company’s debt-to-assets ratio is 42.9%. This isn’t a “high debt load” by any means, but there are less levered options in the industry. For example, industry leader Welltower’s debt only makes up about 31% of its total capitalization, and the company recently announced plans to de-lever to less than 27%. The higher debt level adds an element of risk, because a highly leveraged company may have more trouble paying its obligations and its dividends if profits were to drop.

The bottom line

No stock that can quintuple investors’ money in less than 15 years is without risk, and Senior Housing Properties Trust is no exception. However, in this case, I believe the growth potential and cheap valuation make up for the risks and then some. Senior Housing Properties Trust is a stock I’m strongly considering adding to my portfolio in 2017, and if I do, I’ll plan to hold on to it for decades to come.

The best dividend stocks to buy now
If you’re looking for solid income from dividend stocks, look no further. The Motley Fool’s top dividend analyst, who leads our dividend stock newsletter, Income Investor, just picked what he believes are the best income stocks in the market right now.

These dividend cash cows could be the latest in a long string of market-beating stocks Income Investor has picked over the years.

Click here to get access to the full list!

Matthew Frankel owns shares of Welltower. The Motley Fool recommends Welltower. The Motley Fool has a disclosure policy.


You May Also Like

Surfside luxury condo sees notable sales

Arte at Surfside is making waves. There’s, of course, the news that Ivanka Trump and Jared Kushner are renting at the 16-resident luxury condominium. And there’s the December penthouse sale

Up in the Air: A Discussion

In a dynamic region where residents are typically on the move, everyone is wondering about the health of the airline industry and the safety of airports and airplanes. Everyone is

South Florida Yachting Legend Passes

Robert “Bob” Roscioli, an icon in the South Florida marine industry, has passed away. Many recognize the name Roscioli from the widely-successful and world-renowned Roscioli Yachting Center, a full service

Four key steps

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] What a crazy time we are all experiencing. Right now, getting back to basics is most important. It is not and

Other Posts

Pandemic adds to worries about hurricane season

An above-normal 2020 Atlantic hurricane season is expected, according to forecasters with NOAA’s Climate Prediction Center, a division of the National Weather Service. The outlook predicts a 60% chance of

The difference between leading and managing

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] Leadership and management are often misunderstood as one in the same. They are not. Certainly, a good leader should be able

Flattening the housing curve in a pandemic

By Josh Migdal In the classic film Groundhog Day (and yes, it is a classic), Bill Murray’s character wakes up over and over again in Punxsutawney, Pennsylvania, reliving the same

Putting Hate in its place

[vc_row css_animation=”” row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern”][vc_column width=”2/3″][vc_column_text] Photography by Eduardo Schneider There are days, by his own admission, when the seemingly never-ending battles against hate, discrimination and extremism

Drew Limsky

Drew Limsky



Drew Limsky joined Lifestyle Media Group in August 2020 as Editor-in-Chief of South Florida Business & Wealth. His first issue of SFBW, October 2020, heralded a reimagined structure, with new content categories and a slew of fresh visual themes. “As sort of a cross between Forbes and Robb Report, with a dash of GQ and Vogue,” Limsky says, “SFBW reflects South Florida’s increasingly sophisticated and dynamic business and cultural landscape.”

Limsky, an avid traveler, swimmer and film buff who holds a law degree and Ph.D. from New York University, likes to say, “I’m a doctor, but I can’t operate—except on your brand.” He wrote his dissertation on the nonfiction work of Joan Didion. Prior to that, Limsky received his B.A. in English, summa cum laude, from Emory University and earned his M.A. in literature at American University in connection with a Masters Scholar Award fellowship.

Limsky came to SFBW at the apex of a storied career in journalism and publishing that includes six previous lead editorial roles, including for some of the world’s best-known brands. He served as global editor-in-chief of Lexus magazine, founding editor-in-chief of custom lifestyle magazines for Cadillac and Holland America Line, and was the founding editor-in-chief of Modern Luxury Interiors South Florida. He also was the executive editor for B2B magazines for Acura and Honda Financial Services, and he served as travel editor for Conde Nast. Magazines under Limsky’s editorship have garnered more than 75 industry awards.

He has also written for many of the country’s top newspapers and magazines, including The New York Times, Washington Post, Los Angeles Times, Miami Herald, Boston Globe, USA Today, Worth, Robb Report, Afar, Time Out New York, National Geographic Traveler, Men’s Journal, Ritz-Carlton, Elite Traveler, Florida Design, Metropolis and Architectural Digest Mexico. His other clients have included Four Seasons, Acqualina Resort & Residences, Yahoo!, American Airlines, Wynn, Douglas Elliman and Corcoran. As an adjunct assistant professor, Limsky has taught journalism, film and creative writing at the City University of New York, Pace University, American University and other colleges.