Friday, January 29, 2016

Dividend Growth Investing at Work - Health Care and Real Estate: 2 Great Trends for the Long Term


Something I love about dividend growth investing is that each month I get to hear about companies I own deciding to pay me more money in dividends.  Just for owning a small portion of said companies.  Not going and doing R&D for new products or technology.  Not selling any products.  Not managing any employees or inventory.  Not making sales calls.  All I had to do was have the foresight to invest some of my savings in excellent companies.  That's dividend growth investing at work!  I mean who doesn't like getting a raise for doing nothing?

Dividend raises sure are nice aren't they?  Yesterday the Board of Directors at HCP, Inc. (HCP) rewarded shareholders with an increase to the quarterly dividend.  The raise was relatively small growing the quarterly payout from $0.565 to $0.575 or 1.8%.  However, that's somewhat smoothed out by the fact that HCP is a REIT and they typically have higher yields so you get paid more up front.  The current yield on shares of HCP is up to 6.57% as of yesterday's closing price.

While percentage increase wasn't particularly exciting one notable thing was that this marks the 31st consecutive year of increased dividends for shareholders.  That's a truly amazing feat for any company.

Since I own 81.149 shares of HCP this increase grew my forward 12-month dividends by $3.24.  It's not much but every little bit helps.

HCP ran into issues last year when its largest tenant, HCR ManorCare, ran into issues.  That led to increased worries of financial trouble for HCP and a decrease in the share price.  Management is in the process of selling 50 non-strategic ManorCare facilities with 12 already being sold and the other 38 already under contract.  Total proceeds for the sales are expected to exceed $350 M which is higher than previous guidance.

Due to the ManorCare issues and interest rate concerns the share price has fallen bringing down the valuation.  For full year 2015 management expects FFO to come in between $3.12 and $3.18 which puts the P/FFO, the P/E equivalent for real estate investment trusts, around 11.0-11.2 which could signal a good valuation if you believe that HCP will come out of this little hiccup just fine.  Funds available for distribution, FAD, for 2015 is expected to come in between $2.66-$2.72 which puts the payout ratio between  83-85% if expectations are met.  Given the relatively high payout ratio dividend growth might continue to be on the low side.

I first purchased shares of HCP in October 2013 when the quarterly dividend was $0.525.  Since then there's been 3 dividend increases good for a cumulative dividend increase of 9.52%.  Not bad considering I first purchased shares in October 2013 at a starting yield of 4.90%.

My forward dividends increased by $3.24 with me doing nothing.  That's right, absolutely nothing to contribute to their operations.  Based on my portfolio's current yield of 3.25% this raise is like I invested an extra $100 in capital.  Except that I didn't!  One of the companies I own just decided to send more of the profits my way.  That's how you can eventually reach the crossover point where your dividends received exceed your expenses.  That's DIVIDEND GROWTH INVESTING AT WORK!  That's the beauty of the dividend growth investing strategy because you build up your dividends through fresh capital investment as well dividend increases from the companies you own.

That's it for expected dividend increases for January although I'm still waiting on 3M Company (MMM) to announce the rate for the March 2016 payment.  For the last 2 years that dividend was announced in December; however, prior to that it was typically announced in early February so there's no real concern at this time.

My FI Portfolio's forward-12 month dividends are up to $5,507.11 and including my Loyal3 portfolio's forward dividends of $61.03 brings my total taxable account forward dividends to $5,568.14.

Do you own shares HCP Inc.?  What do you think about its current valuation?

Image courtesy of digitalart on FreeDigitalPhotos.net.

10 comments:

  1. Congrats on the pay raise, JC. Love this time of the year when theres a flurry of div increase announcements coming.

    R2R

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    1. R2R,

      January was pretty quiet for my holdings as far as dividend increases with only 3 raises. Oddly enough all were from REITs. Looking forward to February though and it looks like there will be a flurry of increases. I'm expecting 6 increases announced during the month and 7 assuming MMM finally announces their increase. That should work out to a nice boost to our dividends for doing absolutely nothing.

      Thanks for stopping by!

      Delete
  2. JC,

    More money for doing nothing? Yes, please! :)

    I have somewhat significant positions in a few healthcare REITs now (VTR, HCP, and OHI), and I just love this industry over the long run. There were some concerns over supply a little while ago, but the long-term demographic tailwinds bode well.

    Hope all is well!

    Cheers.

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    Replies
    1. Jason,

      There's nothing quite like getting a raise for doing nothing!

      I'd like to build my own HC REIT positions up some more but I'm short on capital. I'm bullish on both Health Care and Real Estate over the long term so it's a great sector to be in.

      Thanks for stopping by!

      Delete
  3. A raise is a raise no matter how modest. As you stated, this is just one fine example of dividend growth investing at work. How true. Like you, I am a long term fan of the health REIT sector. In fact, the only REITs I own are in the health space. Happy to be a fellow shareholder with you. There's a reason HCP is on the coveted aristocrats list.

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    1. DivHut,

      With the ManorCare issues and sales I expected a lower dividend growth rate than in years past but it's still around the inflation rate so I'm fine with that. Plus raises in years past have helped to juice up the growth rate so I'm not concerned about it because I'm still money ahead compared to inflation over the time I've owned HCP.

      Thanks for stopping by!

      Delete
  4. Hey JC I agree a raise just makes reaching goals that much easier. I have 1 Reit and its O, but looking to add to the healthcare sector soon. Im on track to surpass 6K in 2016, but with a few raises and added contributions I would be very happy if I pass 7K in dividends.

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    1. Rich Uncle EL,

      O has been a stellar performer for my own portfolio with a 45% total return in the 2.5 years that I've owned it so there's no complaints for me. Although I'd like to add more shares of this wonderful company but it's just too darn expensive right now.

      All the best in reaching $7k in dividends by the end of the year. You should have a pretty good shot at that especially if the volatility continues and gives cheaper valuations and higher starting yields.

      Thanks for stopping by!

      Delete
  5. I own no HCP shares, I do have some OHI but only a very modest amount. The long-term prospects look good so I may consider buying shares the coming months.

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    Replies
    1. DaC,

      I own several health care REIT names including HCP, OHI, CCP, and VTR. CCP might be on the chopping block since they were just a spinoff and are essentially the same thing as OHI although I'll give them a full year to prove themselves as a standalone company and see how they do as far as dividend growth. The HC REIT sector has great long term trends so increasing your exposure there could be a good fit. As an added bonus they all have pretty strong yields right now too.

      Thanks for stopping by!

      Delete