Last week, Northwest Healthcare Properties REIT (TSX:NWH.UN) experienced an impressive 7% surge in its share price. This caught the attention of both seasoned investors and newcomers to the dividend stock market. What makes this surge particularly intriguing is that there were no official company announcements to explain the sudden uptick.
With NWH.UN offering a substantial 12% dividend yield, many investors are now wondering whether this is the opportune moment to invest in this healthcare-focused real estate investment trust (REIT). In this article, we will delve into the recent developments surrounding NWH.UN.
The catalyst behind the recent surge in NWH.UN’s stock price was a notable insider trading move. On August 25, Michael Brady, the general counsel and secretary of the company, exercised options to purchase a significant 137,279 shares at a price of $6.38 per share. This totalled an investment of $875,840.02!
Such insider activity can be a powerful signal to investors. In this case, it suggests that a high-ranking executive within the company has faith in its future prospects, prompting confidence among other investors.
Before diving into the recent surge, it’s essential to understand the history of NWH.UN’s stock. This REIT focuses on healthcare properties, and it has been on the market for some time now. However, the dividend stock has faced its share of challenges since its inception, with shares currently down 36% from their initial offering price.
Over the past decade, NWH.UN has weathered various market developments, including economic downturns and fluctuations in the healthcare sector. Despite these hurdles, the company has managed to maintain its portfolio’s quality and defensive characteristics. NWH.UN’s portfolio consists of over 2,000 tenants across 231 properties, with a high occupancy rate of 96% and a weighted average lease expiry of 13.5 years, providing a stable cash flow foundation.
Earnings come in, and investors aren’t happy
If we examine NWH.UN’s recent earnings report, which includes Q2 2023 financial and operational highlights, there are notable points to consider. Revenue increased by 13% and 16.6% for the three and six months ending June 30, 2023, respectively. Yet adjusted funds from operations per unit decreased from $0.20 in Q2 2022 to $0.13 in Q2 2023. This decrease was primarily due to lower management fees and an increase in interest expense related to floating rate debt.
Operationally, NWH.UN’s portfolio demonstrated strength, with a 5.1% year-over-year growth in same-property net operating income. The portfolio’s occupancy remained robust at 96%, thanks to the long-term leases and rent indexation clauses in 83% of the leases.
Analysts weigh in
Following the release of the earnings report, analysts provided insights. One reduced the target price for NWH.UN from $9 to $8, which is below the average target price of $8.50. They maintained a “sector perform” rating for the dividend stock, emphasizing that the portfolio’s assets are in good shape and experiencing healthy organic growth. However, they also expressed concerns about the company’s balance sheet, particularly with recent setbacks in the cancellation of a United Kingdom joint venture.
The analyst suggested that NWH.UN’s strategic review is a positive step towards bridging the gap to the underlying value of its assets. Still, they remained cautious due to the uncertainty surrounding the timing and outcomes of these strategic moves.
In conclusion, the recent insider trading activity signals confidence in NWH.UN’s future prospects, which can be encouraging for potential investors. However, the dividend stock’s historical performance and recent earnings report reveal a mixed picture.
Investors must weigh the potential for future growth against the challenges the company faces, as highlighted by analysts. The 12% dividend yield may be attractive, but it comes with risks and uncertainties.
Ultimately, whether NWH.UN is a worthy investment or not depends on your risk tolerance and investment goals. It’s essential to conduct thorough research, consider your financial situation, and consult with a financial advisor before making any investment decisions in this or any other dividend stock.
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Fool contributor Amy Legate-Wolfe has positions in NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool recommends NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.