One value stock I’ll be buying for my holdings as soon as I can is Target Healthcare REIT (LSE: THRL). Here’s why!
Income yielding property
Target is set up as a real estate investment trust (REIT). It owns and operates property assets and makes rental income. The allure of REITs is that they must return 90% of profits to shareholders. As a passive income seeker, this is a dream!
Target specialises in care home properties and currently owns and operates close to 100 around the UK.
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Over a 12-month period, the shares are down 4% from 84p at this time last year, to current levels of 80p. The share price chart below looks like the journey of an exciting roller coaster in a theme park. However, recent economic turbulence hasn’t helped property stocks, hence the up and down nature of its shares.
The positives and negatives
From a bullish perspective, the passive income opportunity at present looks too good to miss out on. A dividend yield of 6.9% is higher than the FTSE 100 average yield of 3.8%. However, I’m conscious that dividends are never guaranteed.
Next, the shares look good value for money on a price-to-earnings ratio of 12. I reckon recent volatility has held the shares back. There’s a good chance once volatility dissipates, they could climb, making them potentially more expensive later down the line.
Moving on, I also think Target is primed for growth in the future, hence my long-term buy and hold outlook at such an enticing valuation at present. Care homes should continue to experience robust demand due to the UK population growing and more crucially, ageing. Demand for care services rising could help boost Target’s performance, and investor returns.
Finally, a recent positive update released on 1 February made for good reading. The business confirmed the net asset value (NAV) of its properties had increased. Furthermore, cash levels looked in a good position supporting a healthy balance sheet, which bodes well for returns and growth.
From a risk perspective, many REITs and property firms must borrow money for growth purposes such as buying new properties. At present, higher interest rates make any borrowing more costlier, which could hurt performance and payouts moving forward.
The bigger risk I’m concerned about is the current healthcare staff shortage in the UK. Reports recently have noted many are leaving the profession due to pay issues or an imbalanced work life balance. Others are seeking opportunities abroad, where the pay and balance is more attractive. Target may be able to grow its estate but if it doesn’t have the staff to operate them, problems could arise.
My verdict
There’s a lot to like about Target, hence my overall bullishness around the stock. An enticing passive income opportunity, attractive valuation, coupled with the current demographic of the population, could help the shares climb nicely in the future.
Like with all stocks, there are risks to consider. However, I reckon the rewards outweigh the risks which is why I’d buy and hold Target shares for a long time for returns and growth.
