Universal Health Realty Income Trust (UHT) Dividend Stock Analysis

Linked here is a detailed quantitative analysis of Universal Health Realty Income Trust (UHT). Below are some highlights from the above linked analysis:

Company Description: Universal Health Realty Income Trust is  a real estate investment trust (REIT) that invests in healthcare and human service related facilities.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

UHT is trading at a premium to all four valuations above. The stock is trading at a 6.9% premium to its calculated fair value of $30.41. UHT did not earn any Stars in this section.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

UHT earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. UHT earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1987 and has increased its dividend payments for 24 consecutive years.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

UHT earned a Star in this section for its NPV MMA Diff. of the $1,881. This amount is in excess of the $1,100 target I look for in a stock that has increased dividends as long as UHT has. The stock’s current yield of 7.43% exceeds the 3.71% estimated 20-year average MMA rate.

Memberships and Peers: UHT is a member of the Broad Dividend Achievers™ Index. UHT’s peer group includes: Hersha Hospitality Trust (HT) with a 3.9% yield, Cogdell Spencer Inc. (CSA) with a 5.9% yield, LTC Properties Inc. (LTC) with a 6.1% yield and Pittsburgh & West Virginia Railroad (PW) with a 4.5% yield.

Conclusion: UHT did not earn any Stars in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a total of three Stars. This quantitatively ranks UHT as a 3 Star-Hold..

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $39.76 before UHT’s NPV MMA Differential decreased to the $1,100 minimum that I look for in a stock with 24 years of consecutive dividend increases. At that price the stock would yield 6.07%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $1,100 NPV MMA Differential, the calculated rate is negative (0.8%). This dividend growth rate is below the 1.5% used in this analysis, thus providing a margin of safety. UHT has a risk rating of 1.75 which classifies it as a medium risk stock.

UHT’s property portfolio includes hospitals, medical office buildings, and child-care centers with mare than half of the firm’s square footage located in Arizona, Nevada, and Texas. At 3 Stars UHT is the highest ranked REIT that I follow. It’s dividend fundamentals, including debt to total capital of 38% are good. Being a REIT, its free cash flow payout is high due to legal requirements of the structure. However, the company had no negative free cash flows over the last 10 years, which is highly unusual for a REIT. I recently initiated a position in UHT for allocation purposes. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I was long in UHT (2.5% of my Income Portfolio). See a list of all my income holdings here.

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