Ventas, Inc. (VTR): A High-Yield, High Quality Healthcare REIT

Source: Ventas Earnings Presentation

This actually represents an important long-term competitive advantage for Ventas because smart, conservative management will use high share prices to raise cheap equity growth capital, and thus build up a REIT’s equity over time. Then, when share prices fall, such as they are now and might continue to do so if interest rates keep rising, Ventas will have a low enough debt to capital ratio that it will be able to turn to debt to fund growth.

In other words, smart REIT managers will take advantage of high share prices to purposefully dilute existing investors in order to make accretive acquisitions (i.e. FAD/share continues growing), and build up potential borrowing capabilities for when share prices are lower.

In this way, no matter what interest rates or the economy is doing, blue chip REITs like Ventas are able to consistently grow over time, enriching long-term dividend investors along the way.

And of course, that growth in FAD, combined with slower share count growth when prices are low, also helps to maintain a relatively low and secure payout ratio, which is the hallmark of any blue chip, dividend SWAN stock.

Dividend Growth Analysis

Our Dividend Growth Score answers the question, “How fast is the dividend likely to grow?” It considers many of the same fundamental factors as the Safety Score but places more weight on growth-centric metrics like sales and earnings growth and payout ratios. Scores of 50 are average, 75 or higher is very good, and 25 or lower is considered weak.

Ventas, Inc. (NYSE:VTR) has a Dividend Growth Score of 47, indicating investors can expect continued long-term moderate growth in the payout. As seen below, Ventas has paid uninterrupted dividend since going public in 1999 while rewarding shareholders with 7.8% annualized dividend growth over the last decade.

In other words, management made the smart call to hold off raising the dividend at its historical 7% per year pace to let it focus on growing its property portfolio in other, more stable sectors of the medical space such as private senior housing, medical office buildings, life sciences, and hospitals.

When you take into account the fact that the medical property market still has so much consolidation potential, as well as Ventas’ $1.9 billion in total liquidity (enough to fund an entire year’s worth of growth without selling a single new share), I think that long-term investors can realistically expect continued 5% to 6% dividend growth over the coming years.