Macquarie tips an 8% dividend yield and 46% share price gain for this stock

Healthco Healthcare and Wellness REIT (ASX: HCW) shares have had a turbulent year, having been caught up in the private hospital operator Healthscope being placed in receivership in May.

The shares took a tumble around that time but have recovered over the months since and are now trading at 75.25 cents at the time of writing, up 7.5% over a 12-month period.

Major headache for the company resolved

Healthco had some good news this week, saying binding agreements had been finalised for the 10 final Healthscope hospitals owned by itself and the associated Unlisted Healthcare Fund.

This led the company to reinstate dividends, declaring a quarterly payout of 1.5 cents per share, in line with the anticipated full-year payout of 6 cents per share.

Healthco said the new agreements “will enhance the income security and tenant diversity of the hospital portfolio”.

The company said the $1.35 billion portfolio valuation was expected to remain stable, and its weighted average lease expiry had been extended by 2.9 years to 13.5 years.

Healthco said it had locked in 20-year leases, with annual rent escalations at the rate of inflation or plus or minus 3%.

Healthco Fund Manager Christian Soberg said:

The resolution of the Healthscope situation is aligned with our previously-stated objectives including providing continuity of service across all hospitals and maximising long-term value for HCW unitholders. The new leases support distributions being reinstated, restore income certainty and provide a strong foundation for future earnings and distribution growth. The board continues to evaluate a range of strategic and capital management initiatives aimed at maximising value for HCW unitholders.

The quarterly distribution’s ex-dividend date is October 8, with payment to be made on 24 November.

Healthco valuation looking cheap

Macquarie said in a research note that now that the Healthscope issue had been resolved, attention would turn to the sustainability of distributions.

The broker said Healthco was trading at a large discount to its net tangible asset valuation of $1.35 as at the end of June.

Macquarie therefore increased its price target for Healthco from 88 cents to $1.10, up from 75 cents at the time of writing.

If achieved, this would constitute a return of 46.7%. Macquarie is also predicting a dividend yield of 8.2% this financial year, increasing to 8.7% by FY29.

At the release of its full-year results in August, Healthco said it had 99% occupancy across its tenancies.

The company had cash and undrawn debt of $158 million and a gearing ratio of 29%, below its target range.

Healthco is currently valued at $401.6 million.  

The post Macquarie tips an 8% dividend yield and 46% share price gain for this stock appeared first on The Motley Fool Australia.

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Motley Fool contributor Cameron England has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has recommended Macquarie Group. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.