Best of the Best Monthly Dividend Stocks: LTC Properties Inc (LTC)

Today, the yield of LTC is a little low and the Price/FFO is a little high.  LTC has been performing well and it shows in the metrics above. The dividend yield of LTC is about 4.7%. I’d like to see LTC reach a yield of 5.5% and the price/FFO drop to about 14 versus its current 16.4 in order to pick up a few blocks of additional shares.

That is about a 15% drop in LTC’s current valuation to $40. It is a tall order but the stock has dropped over 4% in the last 5 trading days. With the FMOC helping, we could see a brief dip to near $40 in the next couple of weeks. LTC is a great stock to own but the valuation is a bit high at this time.

One last point to make is on LTC’s balance sheet. LTC is a small cap REIT and does not yet have a credit rating from one of the major credit rating agencies. That said, LTC is one of the safest REIT investments out there today. LTC is run very conservatively by the experienced management team at the helm. The chart below shows LTC’s Total Debt to Total Capitalization ratio compared to many of its peers.

Source:  Author

As you can see by the data, LTC has the lowest Debt/Capitalization ratio of any of its health care REIT peers. The low debt load that LTC carries is likely another reason it also carries a premium valuation compared to its peers.

What Are The Risks Of An Investment in LTC Properties?

The primary risk is the potential for interest rates to rise significantly. LTC Properties Inc (NYSE:LTC) is primarily an income investment with medium growth and a significant dividend yield. It therefore falls into the category of bond surrogate and will likely see its share price fall if interest rates begin to rise. Because LTC is able and expected to grow along with the economy, a fall in LTC’s valuation due to rising interest rates would likely be temporary.

The second impact of a rising rate environment would be an increase in LTC’s borrowing costs to continue to grow its real estate footprint.  LTC’s cost of growth capital would go up in a rising rate environment. All that said, I don’t expect the US Federal Reserve will make any significant move to raise interest rates. It is an election year, the US economy is soft, the employment metrics have turned down over the last couple of months, and the rest of the world is still trying to juice their economies via loose monetary policy. If there is to be an increase in the Federal Funds Rate in June, I expect it will be a small one.

Disclosure: This article is originally published on Sure Dividend by Dirk S. Leach.