Senior living facilities have to be happy to see the pandemic winding down. If there was one corner of the economy that got slammed harder than even restaurants and bars, this would be it.
The stats here are anecdotal. We can’t count how many would-be residents opted to stay in their homes a little longer. But let’s just say that senior citizens weren’t rushing to move in while infections ran rampant.
The good news is that these concerns wane by the day, and long-term demand for senior housing is all but guaranteed by demographic trends.
The peak of the post-war baby boom was the late 1950s to early 1960s. These boomers are just in their early-to-mid-60s today, far too young to need long-term care. But the front end of the generation is getting there. Demand will continue to build over the next several decades as more and more boomers enter long-term care facilities.
This brings us to our dividend stock of the week, LTC Properties (NYSE: LTC). And yes, “LTC” stands for exactly what you think it does: long-term care.
LTC is a real estate investment trust (REIT) invested in skilled nursing and assisted living facilities. The property portfolio is divided roughly equally between the two segments. The way this industry works, assisted living facilities tend to be private pay, whereas most skilled nursing facilities are supported by government programs like Medicare and Medicaid. LTC’s overall payer base is approximately 60% private pay and 40% government pay.
LTC made it through the pandemic with barely a scratch. Remember, this is a landlord, not an operating company. LTC’s tenants had a rough year, but with precious few exceptions, they kept paying the rent.
Let’s talk dividends. That’s why we’re here, after all. LTC pays a competitive yield of 5.3%. And as an added quirk, it pays the dividend monthly, as did another recommendation of mine: Realty Income (NYSE: O). I’d never recommend buying a stock simply because it paid its dividend monthly. That would be ridiculous. But it’s a nice bonus. Monthly income gives you some flexibility with your investments.
You know the drill. Let’s see how LTC rates on our Green Zone Ratings system.
LTC Properties’ Green Zone Rating
The stock sports an overall rating of 68, which is well into “Bullish” territory.
LTC Properties’ Green Zone Rating on May 4, 2021.
That is significant, because a lot of REITs do not rate well in our system due to accounting quirks.
Growth — I like this. LTC rates strongly on growth at 71. But remember, I mentioned earlier that this industry hasn’t entered its growth phase. That’s still several years away. LTC rates highly on growth, even at a time when industry growth is muted. Imagine how it might perform when it has beneficial tailwinds.
Size — LTC is a smaller REIT with a market cap around $1.6 billion. It rates a 65 on our size scale, meaning that a general preference for smaller stocks should benefit us here.
Quality — I’ll admit that this surprised me a little. LTC rates a 63 on quality. REITs often rate low here due to their high debt levels and low reported earnings due to non-cash expenses like depreciation. Our model prefers “asset-lite” businesses like software companies over “asset-heavy” ones like REITs. So, this is a good rating for a REIT.
Value — LTC rates a respectable 58 based on value, though I’d reiterate that our value score tends to penalize REITs for some of the same reasons our quality score does. A 58 here is understated. LTC is cheaper than this rating indicates.
Volatility — LTC rates towards the middle of the pack on volatility with a score of 57. The stock took a beating in 2020 just like everything else. But LTC is still less volatile that well over half the stocks in our universe.
Momentum — This is a weak spot. The stock rates just a 39 on momentum. But we aren’t catching a falling knife here. While the momentum score is lower than I’d like to see, the stock has been trending higher for the past several months. Bottom line: To sum it up, if you’re looking for an established dividend payer you can buy, drop in a drawer and forget about for years or even decades, LTC makes the cut. If you don’t need the income, consider reinvesting that monthly dividend in additional shares, turning this dividend payer into a compounding machine.
To safe profits,
Charles Sizemore
Editor, Green Zone Fortunes
Charles Sizemore is the editor of Green Zone Fortunes and specializes in income and retirement topics. Charles is a regular on The Bull & The Bear podcast. He is also a frequent guest on CNBC, Bloomberg and Fox Business.