An income stock I believe could be a great addition to my holdings now, and provide longer-term returns, is Impact Healthcare REIT (LSE: IHR). Here’s why.
Properties in healthcare
Impact Healthcare is a real estate investment trust (REIT) focusing on residential care home properties. REIT status basically means it is a business set up to own, manage, and rent out properties and make money from them. The beauty of such businesses is the fact that they must pay 90% of their profits to shareholders. This is what makes it an ideal income stock, in my opinion. I already own a few other REITs as part of my holdings to boost my passive income.
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As I write, Impact shares are trading for 79p. At this time last year, they were trading for 98p, which is a 19% drop over a 12-month period. Remember that many stocks have fallen due to market volatility.
The bull and bear case
I’m bullish about Impact Healthcare’s longer-term health and performance due to the ageing population in the UK. The requirement for care homes and other healthcare properties is only set to rise, according to research undertaken by prominent bodies in the adult social care sector. At the moment, demand is outstripping supply. This doesn’t look like it is set to change for at least the next 10 to 12 years. The company could see its performance boosted, which could translate into increased investor returns.
Speaking of returns, Impact Healthcare’s 8% dividend yield is enticing for me, as an investor seeking an income stock with a high but sustainable yield. At present, it’s covered by 1.2 times earnings. However, I’m conscious that dividends are never guaranteed.
The half-year report in August made for excellent reading. A solid balance sheet with lots of cash and unused debt facilities gives the business breathing room. It also reported a 12.2% increase in property investments, as well as a 2.4% increase in like-for-like portfolio value and a 5.6% increase in net asset value. I’m keen to see full-year results early next year.
From a bearish perspective, Impact Healthcare does have some debt to manage. This is a concern at the moment due to higher than normal interest rates. When rates are higher, debt is costlier to service, which can impact investor returns.
Another concern is the looming spectre of a property crash. Higher interest rates and falling property prices have made the market volatile. Growth and purchasing new properties may slow down for Impact Healthcare. I’ll keep an eye on developments here.
An income stock I’d snap up now
I’ve decided that the next time I have some spare cash, I’m going to buy some Impact Healthcare shares. I’m expecting to see consistent and stable returns with a view to them growing nicely in the longer term.
I am conscious that the shorter-term picture for Impact Healthcare could be volatile due to macroeconomic factors out of its control. However, the business seems to be handling the current challenges well. This view is based on recent half-year results. For me, the key to Impact Healthcare’s growth and success is the burgeoning property sector it operates in.
