One FTSE 250 stock I’ve decided to add to my holdings when I next have some cash to invest is Target Healthcare REIT (LSE: THRL). Here’s why.
Care home properties
Target is a real estate investment trust (REIT), which basically means it owns and operates property to yield income. What I love about REITs is that they must pay 90% of profits to shareholders. This is the reason I already hold positions in a fair few REITs as part of my existing portfolio. I view them as an excellent way of boosting my passive income. Target owns and operates 97 care homes throughout the country.
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As I write, Target shares are trading for 76p. They’re down 14% over a 12-month period as they were trading for 86p at this time last year. Many FTSE 250 stocks have struggled in recent months due to macroeconomic volatility impacting markets. This has thrown up opportunities to buy quality stocks, like Target, at cheaper prices.
Why I’d buy this FTSE 250 stock
To start with, I believe that Target operates in a burgeoning market sector. Research indicates the UK has an ageing population, and this should benefit care home providers and companies such as this. In that case, Target could see demand for its properties and spaces in these homes increase, which should, in turn also increase its income. This rising number of elderly people could even help boost growth and increase returns in the long term.
In addition to the ageing population, due to the nature of the properties Target owns and operates, the majority of its tenancy agreements are long-term. This is ideal for investors as it offers an increased sense of peace of mind and security that returns should be consistent and stable.
Speaking of returns, Target’s current dividend yield stands at an index-beating 8%. For context, the FTSE 250 average yield is closer to 2%. However, I’m conscious that dividends are never guaranteed.
Finally, Target shares look decent value for money to me right now on a trailing 12-month price-to-earnings ratio of 12. If current year forecasts are met, this could decrease to eight, making the shares even more attractive. I am aware that forecasts don’t always come to fruition.
Risks and final thoughts
I’m bullish on the shares but I am aware of a couple of risks that could hamper Target. Firstly, the struggle to recruit nursing staff in the UK is intensifying. Many nurses are either moving abroad for better pay and lifestyles, or leaving the profession altogether. Target may have long-term tenancy agreements but care homes can’t run without the appropriately qualified staff.
Another issue for Target is that the commercial property sector looks uncertain due to high interest rates. This could dampen sentiment, as well as impact performance and growth too. I’ll be keeping a close eye on developments here.
To conclude, Target is one of a number of FTSE 250 stocks on my radar. A potentially lucrative sector with growth potential, a good level of return, and a decent valuation helped me make my decision regarding Target. I’m aware macroeconomic headwinds could provide some turbulence, but over the longer term, I’d expect to see earnings and dividend growth.
