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HCP and Its Falling Shareholder Returns

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Mar. 2 2018, Updated 7:30 a.m. ET

Reduced dividends in 4Q17

HCP Inc. (HCP) maintained its 4Q17 dividend in line with 4Q16 at $0.37. However, the yearly dividend has been lower than the past couple of years. HCP paid dividends of $2.10 in 2013, $2.18 in 2014, $2.26 in 2015, $2.09 in 2016, and $1.48 in 2017. The company’s year-end dividend yields also fell ~20.0% in comparison to 2016.

HCP’s three-year dividend growth rate is -12.1% and its five-year dividend growth rate is ~-5.8%. While HCP has a negative growth rate, its peers Welltower (HCN), Ventas (VTR), and Healthcare Trust of America (HTA) have three-year growth rates of ~3.1%, ~1.8%, and 1.7%.

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Stock price performance

HCP has lost ~4.1% in the last one month, ~16.2% in the last three months, ~22.2% in the last six months, and ~27.7% in the last one year.

The rise in interest rates has been a major factor for the fall in REIT prices. Because REITs are considered an alternative to bonds, the increase in yields provides an investment alternative for investors with reduced risk and similar returns.

Effect of the Tax Cut and Jobs Act

HCP has indicated that the recently enacted Tax Cut and Jobs Act could materially and adversely affect the company and its stockholders. The effect of these tax cuts is highly uncertain in terms of direct effect on the taxation of investment in its stock and the indirect effect on the value of assets.

Tax cuts don’t favor REITs because they are tax-exempt entities. This has increased their competition with the taxable companies who are expected to have more cash flow to invest and grow. This has further put pressure on them to perform better.

Investors looking for exposure to the healthcare real estate sector can invest in REIT ETFs. HCP holds ~1.2% in the Vanguard REIT ETF (VNQ).

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