Last week I did an analysis on OHI here at Polliesdividend (click here). A few fellow bloggers helped me with my analysis by pointing out that I used the wrong metrics for evaluating a REIT company. One of these nice bloggers was Roadmap2Retire. He pointed HCP out which has a great track record and is much more attractive than OHI at that moment.
I learned something new, and wanted to try it out. Therefore this analysis is on HCP Inc. (HCP).
Company (from google finance): HCP Inc. invests in real estate serving the healthcare industry in the United States. The Company is a self-administered real estate investment trust (REIT). The Company acquires, develop, leases, manages and dispose of healthcare real estate, and provide financing to healthcare providers. The Company’s portfolio is comprised of investments in the five healthcare segments: senior housing, post-acute/skilled nursing, life science, medical office and hospital. The Company makes investments in healthcare segments using five investment products: properties under lease, debt investments, developments and redevelopments, investment management and investments in senior housing operations. Senior housing facilities include assisted living facilities, independent living facilities and continuing care retirement communities.
Can I explain this to a 10-year old? What Does This Company Do? This company owns care homes, senior housing and hospitals. In the US they have the largest and most diversified portfolios of all healthcare REIT.
Dividend Aristocrat: HCP is paying Dividend for 30 years in a row. It is therefore a Dividend Champions on the CCC-list from David Fish! (Nr. 89) They have 4 stars on Morningstar.com. This looks like a fine and solid investment. That’s a pass!
Dividend Yield > 2.5%: The dividend Yield of HCP is 5.34%. This is above the industry average of 4.7%. And just above the 5 years average (5.0%). The last 30 years they raised the dividend every year. The last dividend increase was in January of this year. The Yield is above the requirements of the Pollie-Code, and therefore it passed the second Pollie-code.
Dividend payout <70%: The dividend payout is roughly 70% (FFO payout ratio). HCP managed to lower this figure from 2003, at that point this indicator stood at 99%. This is a good sign. The FAD (funds available for distribution) is $2.57. You can say with these figures that the dividend ($2.12) is well covered. Together with the FFO payout ratio this is a pass!
DGR 1 year > 0%: The dividend growth rate for 1, 3, 5 and 10 years are 3.8, 4.3, 3.4 and 2.7. With a 3-years average over 4%. It is above the requirements of the Pollie-code, so it is a pass.
P/FFO-ratio < 15: HCP has a current P/FFO ratio is 13.27. If we compare this with other REIT (O = 18.89 and OHI = 14.03) you can say HCP is doing okay. This metric is below the requirement of the Pollie-Code. Therefore this is a pass.
FFO is rising: The FFO is 3.04. Over the last 10 years HCP had an annual increase of FFO of around 5%. So HCP passed the sixth Pollie-Code
ROE > 10%: Return on equity measures a corporation’s profitability by revealing how much profit a company generates with the money shareholders have invested. The current ROE is 10.9%. This is another pass.
Market Cap. > 100M: No problem at this point. The Market cap. is more than $ 19,475 Mil. You guested it already: Another pass.
Chowder Rule > 12: Named after “Seeking Alpha” member Chowder. This is a method of identifying candidates for purchase based on a combination of yield and (5-year) dividend growth rate. When the sum of these elements is above 12%, the company presents an attractive entry point (8% for utilities). When the figure is above 8%, an existing holding is still considered worthy of being retained. The current Chowder rule is 8.8. This is therefore a fail on the Pollie-code.
Stock price 52wk high-25%: The 52 wk. high and low are: 49.61 and 36.00. This means that HCP will be in my buying zone when the stock price is below 46.21 ((49.61-36.00)*0,75 + 36.00). At this moment HCP is trading for $40.34. Therefore it is a pass on the Pollie-Code.
Beta: I think it’s important to have low Beta stocks in my portfolio. This helps to have a stable income all the time, even when the market has a rapid decline. The Beta for HCP is 0.46.
Conclusion: When I look at my analysis, HCP passed 9 out of 10 from the Pollie-code! The Pollie-code only failed at the Chowder rule. Based on these figures I definitely will put HCP on my watch list for my Vrijheid Fonds. With the recent (very small) dip in the stock price, it is nicely priced.
As Roadmap2Retire already said HCP, at this point is much more attractive as OHI.
What are you – the readers, thoughts on HCP Inc.? Is it a buy, do you own it?
Please comment on my analysis and thanks for stopping by!