Healthcare properties

As a quick introduction, Impact is a real estate investment trust (REIT) that focuses on healthcare properties and assets. It primarily deals with care homes that it buys and rents out long term.

As a reminder, a REIT is a business setup to make money from income-yielding property. As a rule, 90% of profits must be handed back to shareholders as dividends. I already own a number of REITs as part of my holdings.

So what’s happening with Impact shares currently? Well, as I write, they’re trading for 118p. At this time last year, the stock was trading for 112p, which is a 5% return over a 12-month period.

A dividend stock with risks

Impact shares do have risks, which I must be wary of. As with any dividend stock, dividends are never guaranteed and can be cancelled at the discretion of the business at any time. This can be for a number of reasons such as poor performance as well as extreme events like a pandemic in 2020 or a financial crash like in 2008. Dividends can be cut in times of austerity to conserve cash.

Next, the healthcare market, and profits to be made by firms like Impact, could be affected in the coming years due to upcoming social care reforms mandated by the UK government. These reforms could place caps on how much people are charged for care and could materially impact care businesses, and the owners of properties like Impact.

Why I like Impact shares

So let’s talk about the positives then. Firstly, I believe Impact has defensive traits. This is because healthcare is an essential service that everyone needs no matter the state of the economy or other macroeconomic factors at play. Furthermore, the ageing population here in the UK could see care home usage increase significantly in the coming years. This will benefit Impact and could make it a shrewd dividend stock to buy now for future returns too.

I believe Impact is preparing for future growth as I saw it acquire a portfolio of 15 care homes across Scotland and Northern Ireland in December 2021. The deal in total was worth £52m. These new properties could help underpin future performance growth and shareholder returns.

So what about Impact’s performance in recent times? I do understand that past performance is not a guarantee of the future. Looking back, I can see it has grown revenue and profit for the past four years in a row.

For any dividend stock I am considering, I want to know the current dividend yield. Impact’s current yield stands at an enticing 6%. This is higher than the FTSE 100 average of 3%-4%. Furthermore, the shares look well priced on a price-to-earnings ratio of 12.

Overall I believe Impact Healthcare REIT could be a great dividend stock to buy for consistent returns and growth. I would add the shares to my holdings.

Rupert Hargreaves: Impact Healthcare REIT

Impact Healthcare REIT (LSE: IHR) focuses on buying healthcare properties in the UK. The properties are usually leased on long-term contracts with annual inflation uplifts. The firm has expanded its portfolio by around 150% over the past few years.

Thanks to this business model, Impact Healthcare has become an income champion. The stock currently yields 4.4%, and analysts expect the yield to hit 5.5% in 2022. I would buy the shares for my portfolio for these reasons.

Some challenges the firm may face include higher interest rates, which could reduce the amount of cash value for distribution to investors.

Rupert Hargreaves does not own shares in Impact Healthcare REIT.

Zaven Boyrazian: Anglo Pacific Group

Anglo Pacific Group (LSE:APF) is a royalties business that finances the development of mining sites of other companies. In exchange, it receives a portion of the materials extracted from the earth.

The firm has a stake in eight producing mines worldwide and another seven in early-stage development. Combined, they supply nine different metals, including cobalt and vanadium, which are key ingredients for electric vehicle batteries.

While the company is exposed to the risk of fluctuating commodity prices, it is currently yielding 6.5%. That’s why I think now is an excellent time to increase my position in this dividend stock!

Zaven Boyrazian owns shares in Anglo Pacific Group

Paul Summers: Somero Enterprises

At the risk of sounding like a stuck record, my top dividend stock for January – and one of my picks for 2022 – is Somero Enterprises (LSE: SOM). Offering a near-6% dividend in FY22, this quality AIM-listed company is doing exceedingly well as the infrastructure boom in the US continues. Somero manufactures laser-guided equipment to check that concrete flooring in warehouses is completely flat. 

Clearly, recent momentum could be lost in the event of a serious wobble in the global economy. At a little less than 13 times forecast earnings, however, the valuation still looks reasonable to me for the income on offer.

Paul Summers owns shares in Somero Enterprises

Ed Sheldon: Legal & General Group

My top British dividend stock for January is Legal & General Group (LSE: LGEN). It’s a financial services company that specialises in insurance, investment management, and retirement solutions.

Legal & General has put together a solid dividend growth track record over the last decade. For 2020, it paid out dividends of 17.6p per share, up from 13.4p for 2015. For 2021, the total dividend is expected to amount to 18.4p. At the current share price, that equates to a very attractive yield of 6%.

One risk to consider here is that share price volatility can be elevated at times. This can impact overall returns. I think the key is to forget about the volatility and focus on the big dividend payments, however.

Edward Sheldon owns shares in Legal & General Group.

Royston Wild: ContourGlobal  

ContourGlobal (LSE: GLO) constructs, acquires and runs power stations all over the world. And at current prices it’s one of the highest-yielding shares on the FTSE 250. A reading of 7.6% for 2022 beats the index’s broader 2% average by a massive margin too. 

Concerns over central bank rate hikes and their impact on the global economy are significant. This has the potential to drive up debt costs at ContourGlobal. But unlike most UK shares, such monetary tightening shouldn’t stop this FTSE 250 business generating big profits, in my opinion. The critical nature of ContourGlobal’s services should see to that. So I think this is a top dividend stock for these uncertain times. 

Royston Wild does not own shares in ContourGlobal.

G A Chester: Polymetal International 

Gold and silver miner Polymetal (LSE: POLY) has a high-quality portfolio of producing, development and exploration assets in Russia and Kazakhstan. It’s a FTSE 100 company, and a top-10 global gold producer and top-five global silver producer. 

Operational setbacks can be a risk with miners, but I think Polymetal’s nine producing mines mitigate the risk by reducing the adverse impact of a problem at any one. 

I’m expecting a fourth-quarter production report later this month to underpin an analyst’s consensus forecast that gives the dividend stock a P/E of around eight and a generous yield of near to 8%. 

G A Chester has no position in Polymetal International.

Roland Head: Ibstock

FTSE 250 firm Ibstock (LST: IBST) is one of the UK’s largest manufacturers of bricks and concrete building products. The company’s products are used by housebuilders, in commercial buildings and on the railway network.

Ibstock’s business has recovered from the pandemic, but its share price remains nearly 40% lower than at the end of 2019. At this level, the shares offer an attractive forecast dividend yield of 4.2% for 2022.

The main risk I can see for this dividend stock is that a downturn in the construction market could hit demand. However, management say demand remains strong. Ibstock is on my shopping list.

Roland Head does not own shares in Ibstock.

Christopher Ruane: Diversified Energy

Double-digit percentage yields are unusual, but one is offered by Diversified Energy (LSE: DEC).

The company owns over 60,000 oil and gas wells spread throughout the Appalachian region of the US. The sheer number of wells gives the dividend stock critical mass, even though many of them individually are fairly small. That enables it to generate substantial cash flows. The company pays dividends quarterly and currently yields over 10%. One risk, though, is the future cost of capping old wells. That could eat into profits.

Christopher Ruane owns shares in Diversified Energy.

A FTSE 100 dividend star

I believe National Grid’s (LSE: NG) an ultra-attractive dividend stock as rocketing inflation and Covid-19 threaten economic growth. Sure, central bank rate rises in response to soaring prices could cause the FTSE 100 firm’s debt servicing costs to jump.

But I think the essential nature of its services — National Grid has sole responsibility to keep the UK’s power grid up and running — makes it a good pick for these uncertain times. It can expect earnings to remain stable, regardless of broader economic conditions.

I also like National Grid’s drive to expand its asset base in Britain and the US by 6%-8% each year. This could give profits and, consequently, dividends an extra shot in the arm. Today, the company’s dividend yield sits at a meaty 4.8%. And at current prices, National Grid trades on a forward price-to-earnings growth (PEG) ratio of 0.5. A reading below 1 suggests a stock could be undervalued.

Taking care of business

I also reckon Impact Healthcare REIT (LSE: IHR) could be a brilliant buy for me as Britain’s population rapidly ages. Demand for the sort of care homes it operates is therefore soaring and, as a consequence, so are rents. Buying property stocks like this could be a good idea as the rents it charges will rise alongside broader inflation. This dividend stock also trades on a price-to-earnings (P/E) ratio of just 10 times. It carries a chunky 5.6% dividend yield to boot.

Changes to the government’s social care funding could have a significant impact on future profits. Though it’s my opinion that this risk is baked into Impact Healthcare’s low share price. I like the company’s commitment to acquisitions to drive future profits. In December, it shelled out almost £52m to acquire a portfolio of 15 care homes across Scotland and Northern Ireland.

I’m also pleased by Impact Healthcare’s classification as a real estate investment trust (REIT). This means the firm’s obliged to pay 90% of annual profits to shareholders by way of dividends.

8.2% dividend yields!

I think Direct Line Insurance Group (LSE: DLG) could be another useful stock to own if the economy goes sideways. History shows us that consumer spending on general insurance products remains remarkably resilient, even when broader consumer spending comes under pressure. And this UK share can expect demand for its home, motor, pet, landlord and other insurance services to remain solid.

The only fly in the ointment is the potential for subdued revenues and higher claims at its travel divisions if further coronavirus-related lockdowns come down the pipe. I’d still buy Direct Line though because of its low price and massive dividend yield. The latter sits at a mammoth 8.2% while the insurer trades on a P/E ratio of around 10 times for 2022.

I think Impact Healthcare is a particularly great buy for obtaining a reliable flow of income from shares. It operates in one of the more defensive areas of the market (as shown by its rent collection rate of 100% during the Covid-19 crisis). What’s more, under real estate investment trust (REIT) rules, the business is obliged to pay out a minimum of nine-tenths of annual profits in dividends. This means for 2021 the firm carries a large 5.8% dividend yield.

It’s important to remember that underfunding of social care by current and future governments could significantly hurt Impact Healthcare’s profits. So could unfavourable immigration policy which would make it harder and more expensive to source labour. Still, in my opinion these threats are baked into this nearly penny stock’s share price today. City analysts think earnings here will rise 22% in 2021. This leaves the UK share trading on a forward price-to-earnings (PEG) ratio of just 0.5. A reading below 1 suggests a stock could be undervalued.

Another nearly penny stock I’d buy

I’m a long-term owner of Ibstock shares. And I have no intention of selling the brickbuilder any time soon. The outlook for housebuilding in the UK remains extremely bright as demand from first-time buyers balloons. The government plans to build 300,000 homes a year by the middle of the decade to meet future demand.

I think former penny stock Michelmersh Brick Holdings (LSE: MBH) is another top UK share to play this theme. Revenues at the business soared almost 33% year-on-year in the six months to June (and around 10% on a two-year basis). It said too, that it is enjoying a “strong” order book thanks to positive order momentum delivered “against the wider backdrop of recovery in the construction sector and demand in our key markets.”

I expect demand for Michelmersh’s bricks in particular to remain high, too. As I said, housebuilding rates are taking off on these shores. And supply chain problems are damaging brick imports from abroad too. There’s always a risk that the UK share’s revenues will drop if broader economic conditions worsen or the Bank of England starts lifting interest rates in 2022. But it’s my opinion that property demand from first-time buyers will remain strong, helped by the mortgage rate wars being fought out among Britain’s lenders, and huge government support via schemes like Help to Buy.

City brokers think earnings at Michelmersh will jump 52% year-on-year in 2021. Consequently this nearly penny stock trades on a forward PEG ratio of just 0.3. At current prices of 140p per share I’m considering adding this cheap UK share to my investment portfolio too.

This could squeeze the cash flow of landlords at a time when rental growth may be limited by the UK’s economic uncertainty. And with house prices having the potential to fall depending on how the Brexit process moves ahead, being a landlord may become even less attractive.

With that in mind, here are two property-related shares which could be of interest. They appear to offer improving prospects and could generate higher returns than buy-to-let in the long run. As such, they could be worth buying in my opinion.

Growth potential

Releasing an update on Friday was UK healthcare real estate investor Impact Healthcare (LSE: IHR). The real estate investment trust (REIT) updated investors on pipeline acquisitions. It had previously announced that it was in advanced negotiations to acquire an identified pipeline of attractive investment opportunities which included a portfolio of UK care homes with over 2,500 beds.

However, it has now decided not to exchange contracts on the portfolio of assets during 2018. It will therefore not require an equity fundraising prior to the year end. It will, though, remain in discussions with the vendors of the portfolio and with other vendors of other attractive investment opportunities. It therefore expects to raise equity capital at some point in 2019.

The prospects for Impact Healthcare appear to be generally positive. An ageing population and increasing spending on the healthcare sector could lead to a tailwind for the industry in future. With the stock offering a relatively resilient outlook and a price-to-book (P/B) ratio of around 1, it could offer investment appeal for the long run in my opinion.

Total returns

The prospects for another REIT, Big Yellow Group (LSE: BYG), may also be relatively impressive. It has a dominant position in the self-storage sector, and this could provide it with a competitive advantage in terms of cost base and customer loyalty. It has relatively attractive locations, and its strategy suggests that further growth could be ahead over the long run.

The stock has experienced a period of volatility in recent months – in line with other FTSE 250 stocks which have a UK focus during the same time period. It now offers a dividend yield of around 3.9%, which is ahead of the FTSE 250’s yield of 3%. The company’s track record of dividend growth is impressive. It has been able to raise dividends per share at an annualised rate of 17% in the last four years. Although future dividend growth may not live up to its past increase, the performance of the business could remain sound.

Looking ahead, Big Yellow Group is expected to report a rise in earnings of 8% next year. Although the outlook for the UK economy may be uncertain, it could deliver impressive total returns in the long run.

These two companies offer the perfect blend of income from property with the long-term durability of healthcare, two qualities few other companies can match. 

High-quality income 

Target Healthcare’s goal is to “acquire a diversified portfolio of high-quality modern care homes providing excellent accommodation standards” while at the same time generating a sustainable income stream from rents for investors and maximising shareholder returns.

Today the company reported its results for the six months to 31 December and gave updates on these critical objectives. At the end of 2017, EPRA net asset value per share was 104.4p, up 2.5% and the trust achieved a total return for investors during the period of 5.7% including share price appreciation and dividends. Five new properties were added to the rent roll in the period, including the completion of one development asset and four acquisitions, taking the total value of Target’s property portfolio to £335m. Three new tenants were added during the period increasing the “diversity of portfolio income” to 19 tenants with an average weighted unexpired lease term of 28.9 years and loan-to-value ratio of 24.2%. 

Based on the numbers reported by the firm today, shares in Target are currently trading with a dividend yield of 6.4% and a discount to net asset value of 1%. Granted, the company is never going to win any awards for earnings growth, but its sustainable income stream from property (locked in for nearly three decades) is highly attractive. Also, a robust and unleveraged balance sheet should help management grow the dividend further through the acquisition of new properties. 

With this being the case, I’m considering adding Target to my ISA portfolio as a defensive income play. 

6% dividend yield 

Impact is also targeting a dividend yield of 6%. The company only went public at the beginning of 2017, and it still flies under the radar of most investors. Indeed, since hitting the market, the share price has hardly budged. Still, management is targeting a dividend of 6p per share per annum, paid in quarterly instalments, which equates to a dividend yield of 6% based on today’s share price of 100p. 

Like Target, Impact owns a portfolio of care homes, and while management does have plans to expand the portfolio gradually over the next few years, the company is limited to borrowing 35% of the gross value of its asset portfolio, which in my view makes this an exceptionally defensive, fiscally responsible business. 

What’s more, all of the company’s clients are on long-term leases with a weighted average lease term of 19.2 years and an annualised rent roll of £11.9m. There are annual rental uplifts based on the retail price index with a floor of 2% and cap of 4% per annum. So, just like Target, Impact offers a defensive income stream that is set to grow with inflation and is tied to multi-decade contracts. The firm’s strong balance sheet only adds to its appeal.

Alongside this, the FTSE 100 continues to trade close to an all-time high. This means there may be fewer dirt-cheap stocks around. However, while that may be the case, here are two companies which appear to offer a potent mix of high yields and low valuations.

Solid performance

Reporting on Friday was real estate investment trust (REIT) Impact Healthcare (LSE: IHR). The company owns a diversified portfolio of healthcare real estate opportunities, particularly residential care homes. It has acquired 57 care homes since its IPO in March 2017, with an average net initial yield of 7.6%.

Encouragingly, the portfolio has been 100% let and is income-producing. This has meant that the company’s dividend was fully covered against its adjusted earnings in its most recent reporting period. With it on track to pay out 4.5p in the three quarters to 31 December, it has an annualised dividend yield of around 5.8%. This is twice the current rate of inflation and means that the trust may become more popular among income-hungry investors.

With a net asset value per share of 100p, Impact Healthcare appears to offer excellent value for money. It has a price-to-book (P/B) ratio of just over 1, which indicates that it may offer capital growth potential in the long run. With it being a relatively stable and resilient business model, it could also provide defensive characteristics at a time when the outlook for the UK economy is highly uncertain.

Growth potential

Also offering a mix of a high yield and low valuation is developer and operator of student property Unite Group (LSE: UTG). It has a strong growth opportunity due to the pressure on housing supply in the UK. While a large number of students are international postgraduate students, they are unlikely to be affected by Brexit as they often stay for one year or less. Therefore, demand for student accommodation could remain buoyant and lead to higher rents across the sector.

With a dividend yield of 3.3%, Unite Group offers an inflation-beating income return. Dividends are likely to rise over the medium term, since the company is forecast to grow its earnings by 7% in the current year and by a further 15% next year. Since it has a dividend coverage ratio of 1.3, shareholder payouts could rise by at least as much as profit growth. And with the company trading on a price-to-earnings growth (PEG) ratio of 1.2, it could offer significant capital growth potential.

Dividend growth

Lloyd’s of London insurer Hiscox (LSE: HSX) is one such example. The Bermuda-incorporated insurer is set to lift its interim dividend by a penny per share to 9.5p, in a move which brings it closer to fulfilling management’s target dividend growth of 15% this year. This gives shares in Hiscox a prospective yield of 2.4% at the current share price.

The insurer said this morning that the net premiums earned during the six months to 30 June rose by 22% to £936.6m. This helped pre-tax profits, in constant currency terms, to climb 12% against the same period last year, to £133.5m.

When foreign exchange movements were taken into account, the figures looked a lot less cheerful as statutory pre-tax profits fell by more than half to £102.6m. However, it’s important to remember that currency volatility is only a short-term issue. Long-term fundamentals remain broadly intact, with the underlying combined ratio (a key measure of underwriting profitability), up by just 1.5 percentage points, to a still impressive 89.9%.

One of the key attractions of Hiscox is its growing retail business, which once again was its standout performer. The growth in retail continues to offset much of the weakness from its specialist London insurance business. Gross written premiums there declined 8% in the first half, compared to a 27% increase from the retail segment.

That’s because the pricing environment for larger premium, catastrophe-exposed lines remains tough as rating pressure continues amid excess underwriting capacity and historically low loss ratios. On the upside however, Hiscox had minimal exposure to some high-profile losses in the industry this year, including the Grenfell Tower fire and Cyclone Debbie, which hit Australia in March.

Demographic shift

Elsewhere, newly-listed Impact Healthcare REIT (LSE: IHR) could be a great pick for investors looking for long-term exposure to the property market. As an investor in residential care homes, this REIT looks set to benefit from two ongoing tailwinds, namely an ageing population and the chronic shortage of suitable properties for caring for the elderly.

The REIT’s property portfolio currently consists of 57 residential care homes, following the acquisition of the Seed Portfolio and Saffron Court in Leicester in May and June, respectively. And as is typical for the sector, Impact Healthcare benefits from long lease terms with upwards-only annual RPI-linked rent reviews. This enables the REIT to earn steadily-growing income and gives it significant protection against a potential downturn in the property market.

Looking ahead, the company sees a strong pipeline of attractive new potential investment opportunities, which includes further acquisitions and asset management opportunities. Subject to financing, it is set to move forward with plans to expand three of its existing homes to create 92 additional beds. With no debt in place at present, Impact Healthcare surely has plenty of potential for growth.

Shares in the REIT currently trade at a 5% premium to its net asset value, with a prospective dividend yield of 5.8% this year.