Tuesday, July 18, 2017

LTC: A Monthly Dividend Offering a Growing Payout

By Gaurav Sharma

There's a famous saying in the investment world: The greater the risk, the greater the return.

Greater risk requires more information: Can the business survive? Is the business model easy to understand? Being a higher-risk investment, does it need to be assessed on a more frequent basis?

These are all valid questions when investing.

Rather than taking on huge risk from the beginning, the best investments are those that can survive, with easy business models and little causes of stress. Instead of assessing the investments on a continuous basis, spend your free time doing the things you love to do.

The best way all of these questions can be answered is by owning the best dividend stocks, with returns generated through income and capital appreciation.

LTC Stock Offering a Dividend Yield of 4.33%


The stock that will be analyzed today is LTC Properties Inc (LTC). Typically, most dividend stocks that trade on the markets pay out a quarterly dividend, but LTC is an exception, paying out monthly. LTC also pays out a dividend yield that is almost double that of the S&P 500 Index.

LTC's dividend has grown 31% over the past five years. This is in part thanks to its status as a real estate investment trust (REIT), which requires the company to pay out at least 90% of its taxable income – in other words, the dividend is essentially mandatory. In return for doing this and keeping 75% of invested capital in real estate-related assets, LTC receives tax breaks from the government.

Even though there is a higher return when compared to the S&P 500, LTC also carries less risk. This is supported by the daily price movement of the stock against the index, with LTC seeing an average negative return of 0.15% for every one percent of negative return on the S&P 500. This means that there would be more value in LTC in a down market than the index. Note that this does not include returns from the dividend. All this is possible because of the annual growth in revenue, increasing 71% over the same five-year period noted above. (Source: LTC Properties IncMarketWatch, last accessed July 4, 2017).

Business Strategy


LTC invests in senior housing, skilled nursing, assisted living, independent living, and memory care facilities. They own more than 200 properties spread across the United States, the majority of which are skilled nursing and assisted living locations.

Debt is normally seen as a negative, but in the real estate sector, debt is very common since a large capital investment is required. LTC's debt is very small, considering its assets, which means the debt has been incurred and used strategically and wisely. Also, compared to its industry peers, LTC's overall debt is much lower than the industry average. Further, a low debt helps support the dividend's continued growth and stability.

Final Thoughts On LTC


LTC will provide exposure to the real estate market, known for its cash flow and ability to generate wealth. The cash flow is earned through the rental income that is paid to investors via the dividend, while the wealth will come from the price appreciation of assets.

LTC is a stock that rewards its shareholders with a steady and growing dividend. These actions show investors and the market that LTC is shareholder friendly. With its solid balance sheet, LTC is worth considering as an investment.


This article was written by Gaurav Sharma, security analyst for Income Investors.
He advocates for commonsense, buy-and-hold investing. You can find
his daily investment ideas and commentary at IncomeInvestors.com.

10 comments :

  1. I have been looking at them a lot lately as a secondary monthly dividend payer that will sit well next to my position in O. DivHut recommended them a little while back, just never got around to starting a position. What do you think about the value at its current price? Or would you wait for it to hopefully drop a little more?

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    Replies
    1. Hi, Dividend Daze -- perhaps Gaurav would share his opinion on LTC as to a fair value estimate.

      I haven't look at LTC yet in detail, but a quick look in F.A.S.T.Graphs indicates that LTC is trading above fair value, perhaps as much as 13%. If so, a more appropriate entry would be around $45.

      Delete
  2. I always like the REIT's I recently increase my position in PRV-UN on the Canadian side will give LTC a look for the next quarter

    ReplyDelete
    Replies
    1. Thanks for reading and commenting, Canadian Yardie -- hopefully LTC would drop a little to give us a better entry point!

      Delete
  3. Nice write-up. I currently only own only one Monthly Dividend Stock and would love to have a few more dividend stocks in my portfolio who pay on a monthly basis. I'll do some more research on LTC but like what you laid out.

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    Replies
    1. Agreed, Mike! LTC was not on my radar until Gaurav submitted this article as a guest post. This is one reason I now like the idea of having guest posts. It is a good way to introduce fresh ideas and hopefully gives authors some new exposure, too.

      Having another monthly dividend paying stock would be great... I have a few but one more would definitely be welcome!

      Delete
  4. I've been looking at LTC as an investment. I've held off because I have exposure with OHI to the same space. But, I like this stock, and I'll be watching for a dip.

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    Replies
    1. Thanks for sharing, Investment Hunting. I, too, have exposure with OHI. One thing that makes LTC attractive is the monthly dividend paying schedule. I certainly can do with more monthly dividend payers to help those non-quarter-ending months a bit!

      Delete
  5. I could use a few more monthly div stocks as well. Keeps me vested when I can invest more each month.
    Later,
    DFG

    ReplyDelete
    Replies
    1. Agreed! In my case, it would also help smooth things out a little as far as boosting dividend income in non-quarter-ending months (albeit just a little bit).

      Delete

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