Real estate shares are sometimes referred to the “Widow and Orphans” section of investment accounts. They are typically low risk, low excitement savings and modest returns. At least they were, until the last few years, when real estate stocks first rose, thanks to simple money that fostered the increase in demand, only to then fall en masse. Many real estate stocks have fallen by 30% or more this year. This provides a great buying opportunity for investors.
My favorite real estate stock is Medical Properties Trust (MPW 1.42%). Medical Properties is a niche REIT that owns and manages buildings for hospital operators. It was created to pair REIT real estate and financial experts with hospital operators who traditionally have the expertise to run a hospital but do not have the knowledge necessary to secure the large amount of funding needed to build one.
Medical Properties offers investors an enticing combination of growth, value, yield and economic resilience. Like most real estate stocks, it is down this year – currently around 34%. Investors who can keep their noses short in the long run are likely to reap good returns in the long run. Let us discuss why Medical Properties is now a good value.
Growth and value
Medical Properties is in growth mode. It has more than doubled its total assets since 2019 and purchased an additional $ 12 billion in properties during that time. Revenue will rise from $ 850 million in 2019 to $ 1.5 billion in 2021.
Thanks to this growth profile, the stock has surpassed other healthcare facility REITs over the last three, five and 10-year periods. See the article : Twitter faces business pressure while Musk deal threatens. Normally, investors have to pay for growth stocks, but this year the stock price fall may have provided an opening for bargains.
REIT is trading at a price-to-earnings ratio (P / E) of 8.4 and a price-to-book value (P / B) of 1.05. It is a five year average for the two ratios are 17.56 and 1.46 respectively. As recently as 2021, it was trading at a P / E of 24.61.
Wall Street is certainly down on the stock market, but is it justified? The problem may be future growth potential.
As interest rates rise, it becomes more difficult and more expensive for REITs to fund new hospital acquisitions. Management estimates it could make between $ 1 billion and $ 3 billion in new acquisitions this year, but the total depends on how much it is able to finance with equity. That means potentially selling existing real estate or through joint ventures.
REIT will probably not grow as fast in the next few years as it has in the last five years, but it is currently marked by no growth.
Yield
The current dividend yield of Medical Properties is 7.3%, an amount that would be appetizing for even the most aggressive growth investor. REIT has been paying dividends in all quarters since October 2004. During that time, the dividend grew from $ 0.10 per share to $ 0.29 per share. It is not amazing dividend growth, but remember, REIT is focused on expanding its business and paying dividends as well.
Let us use the dividend payout ratio to determine if the dividend is sustainable. In the last 12 months, Medical Properties has paid out a total of $ 1.16 per share in dividends and earned $ 1. Read also : Top 10 Issues Affecting Real Estate: Report – Commercial Observer.87 in earned income per share. This means that it pays dividends equal to 62% of its net income. There is plenty of room to pay further dividends.
We can also compare the dividends paid with the funds of the operation of the REIT (FFO), which is an industry-specific measure for cash flow. In 2021, Medical Properties adjusted FFO by earning $ 1.36 per share and paying out $ 1.12 per share in dividends. Following a recent management presentation, it has adapted FFO and its dividend for 10 straight years.
Economic resilience
The last part of our analysis is the economic resilience of REIT. It may surprise you that I’m writing this about a stock going down 34% in six months, but remember, it’s what happened to the business that matters. See the article : Think Of This Way If You Want To Set Up Your Business With Success. If the stock price falls 34% and the business still generates the same cash flow, it just means that the stock can be undervalued.
Medical Properties is uniquely designed to withstand both an economic downturn and an extended inflation period. It can do both because its tenants have significant pricing power – guaranteeing their ability to pay further rent – and they are essential businesses.
In economic downturn, people still have to go to hospitals. When prices go up, people still have to pay for their health care. Medical Properties is unlikely to experience the level of vacations that other REITs would in a recession, and it has incorporated price escalators into its leasing to take advantage of inflation.
Mike Price holds positions in the Medical Properties Trust. Motley Fool has no position in any of the aforementioned shares. The Motley Fool has a revelation policy.
Mike Price holds positions in the Medical Properties Trust. Motley Fool has no position in any of the aforementioned shares. The Motley Fool has a revelation policy.
