Little-Known Stock Offering a Big Yield
Most people have never heard of New Senior Investment Group Inc (NYSE:SNR), but the company offers one of the most generous payouts in the current stock market.
Headquartered in New York City, New Senior Investment is a real estate investment trust (REIT) that specializes in senior housing properties. As of September 30, 2017, the company owns 148 properties, including 103 independent living properties, 40 assisted living/memory care properties, and five continuing care retirement communities. These properties are located across 37 states. (Source: “Quarterly Investor Presentation,” New Senior Investment Group Inc, last accessed January 17, 2018,)
With a portfolio of properties leased to healthcare operators, New Senior Investment can earn a steady stream of rental income. And because it chooses to be taxed as a REIT, the company must pay out at least 90% of profits to shareholders every year in the form of dividends.
Right now, New Senior Investment pays quarterly dividends of $0.26 per share, giving SNR stock a jaw-dropping annual yield of 14%.
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In today’s market, high-yield stocks don’t usually have the brightest growth prospects. But in the case of New Senior Investment, the business actually has solid growth potential.
That growth potential comes from America’s aging population. According to the Population Reference Bureau, the number of Americans age 65 and over is expected to more than double from 45 million in 2016 to over 98 million by 2060. At the same time, the 65+ group’s share of the total population is projected to increase from 15% to almost 24% during this period. (Source: “Fact Sheet: Aging in the United States,” Population Reference Bureau, last accessed January 17, 2018.)
As more people enter their golden years, the demand for senior housing properties will likely increase. With a large portfolio of such properties located across the U.S., New Senior Investment is well positioned to capitalize on the demographic tailwind.
It also helps that 100% of SNR’s portfolio is made up of private pay properties. That means the company doesn’t need a particular government funding environment to run its business.
However, like most double-digit yielders, New Senior Investment is not perfect. In particular, the company generated normalized funds from operations of $0.27 per share in the third quarter of 2017, while paying out $0.26 per share in dividends. In other words, the current payout level does not leave much room for error. Ideally, I would like to see a payout ratio lower than 75%. (Source: “New Senior Announces Third Quarter 2017 Results,” New Senior Investment Group Inc, November 3, 2017.)
In other words, the current payout level does not leave much room for error. Ideally, I would like to see a payout ratio lower than 75%. Still, with a major demographic catalyst and a yield higher than 99% of stocks trading in today’s market, New Senior Investment could be worth a look.