Healthpeak Properties (NYSE: DOC) is a healthcare real estate investment trust (REIT) with 700 properties that house labs, outpatient medical centers, and continuing care facilities in 42 states.Its properties include…
The company’s cash flow has been steadily climbing since 2022. Funds from operations, or FFO, is the cash flow metric we use for REITs. FFO jumped from $611 million in 2021 to $905 million the following year, then rose to $995 million in 2023, and is expected to come in at $1.1 billion this year.Meanwhile, the company paid out $657 million in dividends last year for a 66% payout ratio. In 2024, the total dividend payout is forecast to drop to $638 million, which would lower the payout ratio to 57%.For REITs, I’m comfortable with payout ratios of up to 100%, because REITs must pay out 90% of their profits in dividends. Profits are different from cash flow, but since REITs are required to distribute so much of their profits, their payout ratios tend to be higher.A 57% or even 66% payout ratio for a REIT is nice and low. That tells me Healthpeak can easily afford its dividend.But that hasn’t always been the case.The company has paid a dividend every year since 1989 and has paid out $0.30 per share every quarter since February 2021, which comes out to a 5.8% yield at current prices.However, the dividend was $0.37 before that, so the dividend got a pretty decent haircut in early 2021.Healthpeak also slashed the dividend in 2016, when it paid $0.575 per share.
So we have a company that is growing its cash flow and can easily afford its dividend… yet it has shrunk its payout twice in the past 10 years.I’m not worried about another dividend cut in the immediate future, but management has proven that the dividend is not sacred. It will reduce the payout to shareholders if necessary, as it did in 2021 when FFO fell by nearly 13%.Because of the company’s willingness to lower the dividend when times get tough, the payout can’t be considered rock-solid safe.
Dividend Safety Rating: C
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