HCN Stable in Dividend Payouts - Analyst Blog

Health Care REIT Inc. (HCN), a real estate investment trust (REIT) that operates senior housing and health care real estate assets, has recently declared a fourth quarter cash dividend of 69 cents per share. The dividend marks the 159th consecutive quarterly payment of the company since its inception in 1970.

The latest dividend payout by Health Care REIT reinforces industry expectations of seeing Health Care take a lead in dividend payment in the overall U.S. REIT in 2011. According to data complied by Bloomberg, healthcare REITs would have the best dividend payouts in the industry, benefiting from better-than-expected year-over-year revenue growth and accretive results from over $11 billion acquisitions announced in 2010. Healthcare REITs had earlier recorded an impressive 69% increase in dividend payouts in 2010 – the largest in the industry, as revealed by SNL Financial's data, a premier multisector-focused financial information and research firm.

Solid dividend payouts are arguably the biggest enticement for REIT investors as the U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends to shareholders. According to SNL Financial reports, about 59 U.S. REITs had cut or suspended their dividends in 2009 – the biggest since 2000.

Healthcare REITs usually leases its facilities under "triple-net" master lease agreement, under which the tenant pays all taxes, insurance, and maintenance for the properties, in addition to rent. This insulates the companies from short-term market swings that may adversely affect the operations of a particular facility and provides a steady revenue stream. Healthcare is also relatively immune to the economic problems faced by office, retail and apartment companies. Consumers will continue to spend on healthcare while cutting out discretionary purchases.

The healthcare industry is the single largest industry in the U.S. based on Gross Domestic Product (GDP), and an aging Baby Boomer generation's demand for assisted and independent living facilities should increase in the coming years. Consequently, healthcare REITs are well poised to maintain their growth curves and simultaneously benefit the shareholders with steadily rising dividends.

We presently have a ‘Neutral' rating on Health Care REIT, which currently has a Zacks #3 Rank that translates into a short-term ‘Hold' recommendation indicating that the stock is expected to perform in line with the overall U.S. equity market for the next 1–3 months. We also have a ‘Neutral' recommendation and a Zacks #3 Rank for Nationwide Health Properties Inc. (NHP), a competitor of Health Care REIT.

 
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