NorthWest Healthcare Properties REIT (TSX:NWH.UN) has become a favourite investment for many seeking passive income. The dividend stock has always provided a high yield, but lately, it’s been even higher.
Still, higher yields usually mean lower share prices and therefore lower returns. That has also been the case for NorthWest REIT stock. So, what should investors be doing with this real estate investment trust (REIT) on the TSX today?
What happened?
On the surface, it’s pretty clear what originally happened to NorthWest REIT stock. The company climbed during the pandemic, as the healthcare properties REIT continued its focus on healthcare properties. These properties will always remain essential but became even more of a focus during the pandemic.
Lower interest rates and growth for the company led it to make some strategic acquisitions during this time. This, too, led share prices to grow higher. Yet after peaking at around $14 per share, the stock started to tumble with the rest of the market back in 2021.
Stocks that climbed during the pandemic started to drop as investors saw inflation and interest rates rise. Wanting their returns to make up the difference, growth stocks such as NorthWest REIT stock started to fall lower and lower. As of writing, shares are down by more than half to $6.31 per share.
More than the pandemic
The issue here is that it wasn’t just being a pandemic stock that led to the fall for NorthWest REIT stock. There were a few other issues as well — some were out of the company’s control; others, not so much. First off, higher interest rates and expenses led to lower net income for the company. It also led to lower renewals from its tenants. While the stock continues to post around 96% occupancy rates or higher, considered exceptionally high, investors didn’t like how that’s down from 98% just a year or two ago.
However, NorthWest REIT stock also saw a joint venture from a United Kingdom partnership fall through. This, too, led to shares plunging, as it meant lower revenue in the near future as well. So, with lower net income, lower lease agreements, and the potential for lower near-term growth, it’s clear that investors weren’t all that interested in picking up the once-popular stock.
What about now?
It’s times like these that investors should think back to the Warren Buffett quote to be greedy when others are fearful. Right now is most definitely a time to get greedy with this stock. And here’s why.
Although shares are down, NorthWest REIT stock now offers a whopping 12.5% dividend yield as of writing. While the dividend itself hasn’t grown since coming on the market, it’s remained steady and stable throughout the last several very volatile years.
What’s more, even with occupancy rates down slightly, these are bound to pick back up once interest rates stop climbing. But even beyond that, these lease agreements are dialled in for an average of 14 years! That’s well over a decade of secure and stable income, mainly from hospitals and healthcare facilities. So, while there’s been a dip, don’t think there’s going to be a sudden plunge in occupancy rates as well.
What’s more, the stock is incredibly valuable. It currently trades at just 7.42 times earnings over the last 12 months. And again, shares are at all-time lows. So, when the market starts to pick up, there is bound to be a flood of investors coming in to pick up this stock.
Bottom line
NorthWest REIT stock has a stable dividend, beyond cheap share price, and stable future net income from current lease agreements. Cash on hand is being used for more strategic acquisitions, which should certainly come the company’s way. Even though a joint venture fell through, it’s proven before that it can find new opportunities.
Therefore, with an absurdly high dividend yield at 12.5%, I would say NorthWest REIT stock is a buy on the TSX today.
