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How Welltower Is Rewarding Its Shareholders

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Jan. 15 2018, Updated 9:05 a.m. ET

HCN’s dividend policy

Welltower (HCN) announced a dividend of $0.87 per share for 3Q17 from the previous guidance $0.86 in 3Q16. The dividend yield stands at ~5.6%. The three-year dividend growth rate is 3.05% while the five-year growth rate is 3.28%. The payout ratio stands at 191.31%.

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Diminishing effect of a dividend hike

The number of shares has tripled in the last seven years and increased by ~60% over the last five years. The dividend per share for 2012 and 2017 is $2.96 and $3.48, respectively. This increase is only 17%, while the total amount spent on dividends increased ~83%. The importance of dividend hikes is therefore diminished.

In recent years, the share count has increased at a slower rate. The share count was of 329 billion in 2014—while it was 363 billion in 2016, an approximate increase of 3% The rise in interest rates and the amount of dividends exceeding cash flows continues to pressure margins. Therefore, HCN is likely to increase dividends slightly by $0.01–$0.02 to $0.88–$0.89.

Share price performance

HCN’s share price returned -8.46% in the last month, -10.73% in the last three months, and -16.30% in the last six months. Peer HCP’s (HCP) returned -9.04%, -7.87%, and -21.14%, respectively. Healthcare Trust of America (HTA) returned -8.48%, -6.37%, and -5.35%, respectively. Ventas (VTR) returned -10.22%, -10.15%, and -15.09%, respectively.

Welltower makes up almost 2.59% of the Vanguard REIT ETF (VNQ). HCN and its peers in the healthcare REIT industry are in difficulty due to continuously increasing interest rates and changes in the political landscape to policies like Obamacare. However, HCN has a well-diversified portfolio to overcome these hurdles.

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