Are the Dividends Still Healthy? HCP

Happy 3-day weekend and Happy Easter. Who is ready for candy? Mine just happens to be dividends and they are sweet. Today, we have a small milestone. We are making a second purchase of one of our stocks. All of our purchases have been new stocks so far.

Heath Care Symbol
Heath Care Symbol

Being that we like dollar cost averaging, at least I assume I do since this is our first, we are going to buy the stock that we have the greatest loss in. This happens to be HCP (HCP). We are down about 12% and that is not bad considering it is our worst current performer.

HCP (HCP) is a Health Care REIT. They own and rent out buildings to the health care industry, such as hospitals and medical offices. They were organized in 1985 and have 1,100 properties.

HCP (HCP) seems to be down because of their customer’s issues. 33% of revenue come from HCR ManorCare and Brookdale. These customers are running into trouble, and if they have a hard time paying their bills, HCP (HCP) may get a revenue cut. Assume they get paid 24% less, their overall revenue would down 8%, which could force a dividend cut. Also, with the concerns of Medicare, Medicaid, and everything happening in health care, this is a definite risk for the stock.

HCP (HCP) is a dividend aristocrat, which means they have paid an increasing dividend for 25 years. They take us back to at least 1991. I wonder if any other health care changes or challenges happened since then. With their great track record, even with these increasing risk, we believe there is a good chance they have the systems in place to overcome this.

What if the worse happens and they cut the dividend? Since they are a REIT, they have to pay 90% of profits. However, let assume these issues massively hurt the dividend and it is cut by 50%. Ouch. Their dividend yield will go from 7.3% to 3.7%. That is still a good yield, and after they lick their wounds, they would probably increase it again. That what good companies do. Although, this would lose them their dividend aristocrat status. I assume they will fight to keep it.

With HCP (HCP) having the title of dividend aristocrat, they have years of practice being a great company. Even if a 50% dividend cut happens, they will still be paying a good dividend. We like the risk reward of buying HCP (HCP) for the dividend. So yes, our vote is yes, that the dividend is healthy.

We bought 8 shares, bringing us up to 15 shares. We are down, including commission, by $32. If we would have purchased 15 shares, we would have been down by about $60, reducing the lose by $28. That saving would pay for several commissions. So, we bought 8 more shares of HCP (HCP) for $258.74, including those healthy commissions. This adds $18.40 to our yearly dividends, increasing our HCP (HCP) dividends to $34.50 a year. With a 29% discount to its 52 week high, this will be healthy entry point for this purchase.

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