Is National Health Investors a Good Dividend Growth Buy?

I’ve been scouring various resources looking for new opportunities in dividend growth land. One interesting REIT that popped up is National Health Investors (NYSE: NHI).

What does NHI do?

NHI is a medical properties trust that invests primarily in senior living properties. Very similar to Omega Health Investors and similar in performance.

NHI is a real estate investment trust specializing in sale-leaseback, joint-venture, mortgage and mezzanine financing of need-driven and discretionary senior housing and medical investments. NHI’s portfolio consists of independent, assisted and memory care communities, entrance-fee retirement communities, skilled nursing facilities, medical office buildings and specialty hospitals.

Risks

Several medical property REITs have come under a bit of duress in the last few months due to the leasees operating with too much leverage.

Valuation

We typically start with the Dividend Discount Model for our dividend growth investments:

3 Year Dividend Growth: 5.57%

Trailing 12 month Dividends: 4.20

Cost of Equity: 10%

Value = 4.20 * (1 + 5.57%) / (10% – 5.57%)

Value = $100

There is a wide range of numbers that I’ve seen for cost of equity on NHI. With a 10% cost of equity, NHI is trading (~$80) at a comfortable discount to value given its dividend yield and growth history. It does have a bit of risk baked in due to its sector, but looks to be an interesting opportunity for REIT buyers.

I haven’t initiated a position yet, but will be looking to add one if the opportunity arises before its next ex-dividend date in September.

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