I currently own shares in real estate investment trust (REIT) Primary Health Properties (LSE:PHP). Here’s why I’m thinking of buying more shares to boost my passive income stream.
Healthcare REIT
As a quick reminder, a REIT is a business designed specifically to yield income from property. It is legally mandated to return 90% of profits to its shareholders in the form of dividends.
Primary Health Properties specialises in the purchase, development, and ownership of healthcare premises throughout the UK and Ireland. An example of a primary healthcare facility is a GP’s surgery.
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So what’s happening with Primary shares currently? As I write, they’re trading for 138p. At this time last year, the stock was trading for 154p, which is a 12% drop over a 12-month period. Macroeconomic headwinds have caused many shares to pull back in recent months, so this is not a concern for me currently.
REITs have risks
The first risk of any dividend stock is the fact that dividends are not guaranteed. They can be cancelled at the discretion of the business at any time. This can be due to dwindling performance or extreme events such as a pandemic. A prime example of this was the Covid-19 pandemic when many firms cancelled dividends to conserve cash.
In regard to Primary specifically, there has been a rise in virtual healthcare options in recent years. Could this offering mean fewer people going and see their GP? There is every chance of this. If this shift were to occur, Primary could experience weakened demand for its properties and operations. This could result in the levels of returns I hope to make being negatively affected.
The bull case and my verdict
Firstly, Primary shares look decent value for money on a price-to-earnings ratio of 14. The general consensus is that a ratio of below 15 represents good value for money.
Next, Primary’s dividend yield stands at an enticing 4.5% as I write. The FTSE 100 average yield is 3%-4%. As REITs are designed to return cash to shareholders, it is not uncommon to see index-beating yields.
So what about performance? After all, performance underpins dividend payments. I do understand that past performance is not a guarantee of the future, however. Looking back, I can see Primary has consistently grown revenue and profit for the past four years. In this time, it has also continued to grow the size of its estate and number of properties.
Finally, I believe Primary has defensive attributes. Healthcare is a staple for all and nearly everyone is registered to a GP surgery here in the UK. Furthermore, resources in the UK are becoming stretched due to a growing and ageing population. This tells me the demand for healthcare services will only grow, meaning a REIT like Primary could benefit.
Overall I’m buoyed by the future of Primary Healthcare Properties. I only see the business growing and in turn, my returns increasing too. Not only will I hold my position, but I would add further shares too to increase my returns.
