HCP Inc – Safe to Buy?

HCP

HCP Inc is one of the largest healthcare REITs and facilities include hospitals, skilled nursing, senior housing, medical offices, and life sciences buildings. HCP Inc went public in 1985 with just 24 skilled nursing facilities in its portfolio and a market cap of $90M. The company has grown over the past 30 years to 1196 properties – which includes 478 Senior Housing Facilities, 20 Hospitals, 115 Life Sciences buildings, 301 Post-Acute/Skilled Property, and 282 Medical Office Buildings.

HCP sports an impressive 6.05% yield. The company is a dividend champion and has raised dividends for 30 consecutive years, with a 5-yr dividend growth rate of 3.4%. The company has had its fair share of issues Рfrom an ousted CEO to financial issues and lease renegotiation with its largest tenant. Is it safe to buy as the company looks to the future for continued investment for growth in US and Europe?

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10 thoughts on “HCP Inc – Safe to Buy?

  1. I just think the recent headwinds for HCP among other REITs in general are simply bumps in the long term road. For the next 20 to 30 years, as you stated in you SA post, the demographic shift the elderly population will pose to our healthcare system will be huge. For now I am comfortable owning the big three health REITs and may buy into the smaller plays OHI, NHI and LTC as well. I don;t mind making the health REITs a small part of my overall portfolio.

    • I think you are right, DivHut. The company will find other operators if HCR Manor goes as far as going bankrupt. There is a huge demand for the facilities and one way or another- things will recover. I think you are doing great by buying the three largest REITs in teh sector. I want to add atleast one more if not two in addition to my OHI position.

      Best wishes
      R2R

  2. I definitely agree with DH above, REITs in general are getting hit with rising rates but this is a plus for healthcare REITs as we can start accumulating shares that we like in an attractive valuation.

    I love your comparison graph especially the yield and the p/ffo, it provides a security of peace of mind that I am making the right choice right now on owning HCP/OHI combo, for my healthcare REIT play, HCP provides me with stability peace of mind (I trust mgt with reducing exposure with ManorCare), OHI provides me with the growth potential. I might add Ventas to the mix if valuation gets more attractive from here.

    Another great article R2R, thanks for sharing!

    • Nice picks, FFF. As you are aware, I own OHI and want to add a second one. I am trying to decide between HCP and VTR. HCN also looks good, but I havent completed a detailed analysis – which Im hoping to finish this wknd.

      Glad you found value in the article and the charts.

      Best wishes
      R2R

  3. My dog says HCP is slightly overpriced, but very little. With its current yield and growth it is a no brainer. So, either wait a bit if those schmucks at Wall Street get stampeded more by their irrational fear of interest rates hike and sell everything (even their own mother) and push the stocks lower or buy now. If it was me, I would place a contingency order to step in if it starts rising, if it continues falling due to a sell off, wait…

    And the noise in media? That’s the first thing I ignore. As Guero777 above said, I would use media’s frenzy to add more shares. The question is, is HCP bankrupting? Cutting the dividend, closing the business? No, what’s the problem then? It’s like MCD, everybody hates the stock and company now, but I am willing to take that risk and buy more shares as I believe that over the 7 decades of operations MCD knows how to get out of the trouble. Another example was JNJ a few years ago with their recalls and media were competing in bankruptcy predictions.

    You make the decision.

    • I think you are right on the money with your thought process, Martin. I dont think HCP is going bankrupt now or anytime soon. The demand for those facilities is high and is going to be higher with each passing day. So, if HCR is having a problem, they can always find a new operator for those facilities. Yes, HCP will lose money if HCR goes bankrupt, but eventually, things will recover.

      cheers
      R2R

  4. I agree with DivHut. The interest rates rising and the HCR manor issue are just minor short term issues. As HCP expands into Europe, they will get new tenants that will make up whatever revenue loss they suffer now. The rising health care demand from aging Baby Boomers will trump whatever immediate headwinds the company faces when you look at the long term picture.

    And 30 years of dividend growth with a 6% yield!? Wow! Now if they only paid a monthly dividend like O and were taxed as qualified dividends, I’d buy them right now (oh, and of I had the capital to do so).

    Speaking of O, what do you think of its recent price drop?

    Sincerely,
    ARB–Angry Retail Banker

    • Hi ARB,
      That is quite a sweet deal – a 30yr div growth and 6% yield. I really like the prospects of them entering the European market… I think its a lucrative option and something other healthcare REITs should also focus on.

      I really like O as well (thats why I have a position in it) and really like the fact that they are well diversified all across the US with properties in 49 states. I think its at a decent price – although I dont think its a screaming buy. Still, if investing for the long term, this should be a decent entry point at close to 5% yield. I love the fact that they raise their dividends quarterly.

      Happy investing
      R2R

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