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Dividend Aristocrats Part 34: HCP, Inc. (HCP)

HCP, Inc. (NYSE:HCP) is one of a kind. It is the only REIT that is also a Dividend Aristocrat.

As a REIT, HCP must pay out at least 90% of its income to shareholders. The fact that HCP has increased its dividend payments for 30 consecutive years shows while paying out 90%+ of its profits to shareholders shows the tremendous stability the company’s operations possess.

HCP Dividend History
Source: HCP REITWorld Conference Presentation, slide 9

However, among the funds followed by Insider Monkey, the sentiment towards HCP is weak, with only 17 funds reporting long positions as of the end of September, compared to 19 funds a quarter earlier. Moreover, these funds amassed stakes with a total value of $265.36 million, representing around 1.50% of the company’s stock at the end of last quarter. Jeffrey Furber’s AEW Capital Management and Jim Simons’ Renaissance Technologies are among the top shareholders of HCP, holding 3.02 million shares and 1.74 million shares, respectively.

There are 3 large players in the health care REIT industry. Each is shown below, along with market cap:

– Welltower (HCN) has a $22.5 billion market cap

– Ventas (VTR) has a $18.1 billion market cap

– HCP (HCP) has a $16.7 billion market cap

In addition to HCP’s long dividend history, the company also has a high dividend yield of 6.3% – the highest of any Dividend Aristocrat. Click here to see 12 quality high dividend stocks.

HCP Business Overview

HCP, Inc. (NYSE:HCP) operates a portfolio of more than 1,000 properties in the United States and British Isles.

The company operates in 5 segments within the health care industry. Each segment is shown below along with the percentage of projected total net operating income generated for the company in 2015

– Senior Housing is projected to generate 37% of total net operating income

– Post-Acute/Skilled Nursing is projected to generate 29% of total net operating income

– Life Science is projected to generate 15% of total net operating income

– Medical Office is projected to generate 14% of total net operating income

– Hospital is projected to generate 9% of total net operating income

HCP’s Competitive Advantage

HCP’s competitive advantage comes from its diverse portfolio of health care properties and its size.

HCP’s portfolio of over 1,000 health care properties minimizes the risk that any one deal possess. Smaller REITs are less diversified, and more subject to risks from individual deals.

HCP’s diversified portfolio is responsible for its 30 consecutive years of dividend increases. The company is diversified not only in the number of properties it owns, but also in the type of health care properties it control.

HCP generally locks its customers into contracts that specify rent increases throughout the course of the contract.  The image below shows how HCP’s diversified portfolio and contractual rent obligations give it sustainable growth.

HCP Same Store Growth
Source: HCP REITWorld Conference Presentation, slide 6

The health care industry is an especially profitable area in which to invest.  HCP is the only REIT Dividend Aristocrat because it focuses its operations on the stable health care industry.

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