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 Inc, MarketWatch, 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.

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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.