Healthpeak Properties, under the ticker NYSE: DOC, stands as a notable player in the real estate investment trust (REIT) sector, particularly focusing on healthcare. With a portfolio spanning 700 properties across 42 states, Healthpeak manages diverse facilities like laboratories, outpatient medical centers, and ongoing care facilities.
Among its prime locations, Healthpeak boasts significant assets including the HCA Houston Healthcare Medical Center, the Mercy Hospital Campus located in Miami, Florida, and the Thomas Jefferson University Hospital Campus in Philadelphia. These properties highlight the company’s strong foothold in vital healthcare regions.
Since 2022, Healthpeak’s cash flow has seen a consistent upward trajectory. When assessing REITs, we typically look at the funds from operations (FFO) as a reliable cash flow indicator. Healthpeak’s FFO rose from $611 million in 2021 to $905 million the following year, hit $995 million in 2023, and is anticipated to reach an impressive $1.1 billion by the end of this year.
As for dividends, Healthpeak dispensed $657 million to shareholders last year, maintaining a 66% payout ratio. However, projections for 2024 suggest a dip, with dividends expected to settle at $638 million, thus lowering the payout ratio to a comfortable 57%.
I view payout ratios up to 100% acceptable for REITs due to their requirement to distribute at least 90% of profits as dividends. It’s crucial to remember profits don’t directly equate to cash flow, yet the elevated payout ratios characteristic of REITs mirror their high profit-distribution mandates.
A payout ratio of either 57% or 66% is quite modest in REIT terms and implies Healthpeak is well-positioned to sustain its dividend payouts without stress.
Nonetheless, the historical context reveals that this has not always been the scenario for Healthpeak.
This firm has disbursed dividends annually since 1989 and has maintained a $0.30 per share quarterly payout from February 2021 onward, translating to a yield of 5.8% at present market prices. Notably, the dividend stood at $0.37 before this adjustment, reflecting a significant cut at the beginning of 2021. Back in 2016, Healthpeak also reduced its dividend from $0.575 per share.
So, although Healthpeak is showing positive cash flow growth and dividend affordability now, it’s worth noting that they’ve trimmed their dividends twice in the past decade. While I don’t foresee an imminent cut, it’s evident that Healthpeak’s management won’t hesitate to reduce shareholder payouts if deemed necessary, as demonstrated in 2021 when FFO saw a 13% drop.
This pragmatic approach to cutting dividends during tougher times suggests that while Healthpeak’s dividends may seem stable, they’re not entirely foolproof.
That being said, I’d rate the Dividend Safety a C.
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