Senior Housing Hikes Dividend - Analyst Blog

By Zacks | October 10, 2012 AAA

Senior Housing Properties Trust (SNH), a real estate investment trust (REIT) which primarily owns private pay senior living communities and medical office buildings (MOBs) across the U.S., has recently increased its quarterly dividend by a penny to 39 cents per share for the third quarter of 2012. The dividend is payable on November 20, 2012 to shareholders of record on October 22.

The current dividend equates to a 2.6% year-over-year increase in the dividend payout and is based on the evaluation of the present market scenario. Based on the closing price of $21.90, the dividend yield is fairly impressive at approximately 7.1%.

A steady dividend payout facilitates the long-term strategy of Senior Housing to provide attractive risk-adjusted returns to its stockholders. The company has also historically promulgated a dividend reinvestment and direct stock purchase plan through which stockholders may purchase additional shares of the company by reinvesting some or all of the cash dividends received on the common shares.

Investors looking for high dividend yields are increasingly favoring REITs. Solid dividend payouts are arguably the biggest enticement for REIT investors as the U.S. law requires REITs to distribute 90% of their annual taxable income in the form of dividends to shareholders.

Senior Housing has one of the most diversified portfolios in the healthcare sector with exposure to nearly all types of facilities. The company leases some of its owned healthcare related and senior housing facilities to third-party operators under "triple net" leases, under which the tenant pays all taxes, insurance, and maintenance for the properties, in addition to rent.

Healthcare is relatively immune to the economic problems faced by office, retail and apartment companies. Consumers tend to continue to spend on healthcare at the expense of discretionary purchases.

The healthcare industry is also the single largest industry in the U.S., based on Gross Domestic Product (GDP). Consequently, healthcare REITs like Senior Housing Properties are poised to continue their bull run in the long term.

We presently have a Neutral rating on Senior Housing, which currently has a Zacks #4 Rank that translates into a short-term Sell recommendation. We also have a long-term Neutral recommendation and a Zacks #2 Rank (short-term Buy rating) for HCP Inc. (HCP), one of the competitors of Senior Housing.

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