I recently published an article entitled “The Best Monthly Dividend Stocks” where I evaluated 17 C-corporation stocks that pay dividends monthly. In that previous article I covered the benefits of monthly dividends and provided the reader with a red/yellow/green recommendation on investment potential and a brief rationale for the recommendation on each of the 17 stocks.
To provide more granularity on those stocks ranked green in the previous article, I’m covering in more detail the four stocks I consider “The Best of the Best Monthly Dividend Stocks”. I previously covered STAG Industrial and Chatham Lodging Trust in the first and second articles of this series. This latest article covers the third stock in the series, LTC Properties Inc (NYSE:LTC).
First let’s take a look at how the hedge funds tracked by Insider Monkey were trading LTC Properties in the first quarter. There were 8 funds with long positions in the stock as of March 31, up from 6 funds with holdings at the end of 2015. Those 8 investors held just 1.20% of the company’s shares, so hedge funds are decidedly underweight the stock. Arrowstreet Capital, managed by Peter Rathjens, Bruce Clarke and John Campbell, was one of the funds to open a position in the stock during the first quarter, holding 21,900 shares of LTC on March 31.
Introduction To LTC Properties, Inc.
In the spirit of providing currently actionable investment recommendations, I chose to cover the four “Best of the Best” monthly paying stocks in order of most undervalued to least undervalued.
Many investors view the REIT sector as a fairly uniform group of companies (trusts) that own property or make loans on property with the investor focusing on the highest yield in the sector. This approach to primarily looking at a REIT’s yield is a mistake. All REITs are not created equal and equity REITs and mortgage REITs are as different as apples and oranges.
When selecting a REIT for investment, it is important to interpret dividend yield through a qualitative (versus strictly quantitative) lens looking at the underlying risk adjusted performance to ensure the overall metrics such as the balance sheet, diversification, earnings growth, and payout ratios support continued growth of the REIT and its dividend. Consistent with this approach, the investment thesis for LTC is laid out in the following paragraphs and charts.
LTC Properties, Inc. is an internally managed REIT which invests primarily in senior housing and long‐term care related properties through facility lease transactions, mortgage loans, and other investments.
LTC is a well diversified health care equity REIT with respect to the type of facilities it owns, the geographic location of those facilities, and the tenants to which it leases properties. The chart below shows LTC’s diversification by property type both in terms of capital invested and in terms of revenue generated.
Source: LTC Properties, Inc.
Roughly 51% of LTC’s capital is invested in skilled nursing facilities (SNF) and that group of properties generates 57.5% of LTC’s revenue. Most of LTC’s remaining capital invested in assisted living facilities.
LTC has also achieved diversification geographically with facilities in 30 of the 50 states in the US. The chart below shows LTC’s US footprint.
Source: LTC Properties, Inc.