But recently, HCP’s bull-market run has come to an abrupt halt, as the stock dropped as much as 30% between mid-May and earlier this month before bouncing back somewhat. The big rise in interest rates is largely to blame, as REITs in general have gotten hit hard as rising bond yields make their payouts look somewhat less attractive by comparison. The threat of Federal Reserve action to ease back on its bond purchases could raise financing costs for the REIT, hurting profits that are already at levels that are below the REIT’s annual payout. The impact of those potential moves have rippled throughout the industry, as Health Care REIT, Inc. (NYSE:HCN), Ventas, Inc. (NYSE:VTR), and even the smaller National Health Investors Inc (NYSE:NHI) have all posted big drops from recent highs over the past several months.
Moreover, HCP in particular has faced some struggles. Even though the company posted favorable guidance on funds from operations and funds available for distribution for the rest of the year, HCP’s second-quarter results fell a bit short of the growth rates investors had hoped to see.
HCP Dividend data by YCharts.
As you can see, HCP’s dividend growth flattened out during much of the 2000s, but it has recently started to accelerate again. Its most recent increase of 5% represents a healthy addition to an already significant payout yielding more than 5%.
The big unanswered question is whether HCP, Health Care REIT, Inc. (NYSE:HCN), Ventas, Inc. (NYSE:VTR), and National Health Investors Inc (NYSE:NHI) will all benefit from the implementation of Obamacare. On one hand, offering greater amounts of medical care should help the health-care real-estate industry generally. Yet with Obamacare largely targeting younger Americans rather than those already covered under Medicare, it’s uncertain how much it’ll matter whether the small proportion of younger residents that HCP and its peers serve will make a substantial difference in their bottom line.
When will HCP boost its payout?
With HCP having raised its dividend in January, it’s unlikely that investors will see another increase before 2014. The key going forward will be making sure that HCP can bring in enough income to support its distributions. You can be sure that the REIT will take extraordinary steps to defend its Dividend Aristocrat status, but any signs of a permanent slowdown in growth could threaten its ability to do so in the long run.
The article Will This Obamacare Play Keep Paying Big Dividends? originally appeared on Fool.com and is written by Dan Caplinger.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter @DanCaplinger. The Motley Fool recommends Health Care REIT.
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