• Wed. Sep 21st, 2022

This dividend stock has an enticing yield and defensive traits!

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I’m looking for shares to boost my passive income stream through dividend payments. One dividend stock I believe could do just that is Impact Healthcare REIT (LSE:IHR). Here’s why I’m considering adding the shares to my holdings.

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.

The post This dividend stock has an enticing yield and defensive traits! appeared first on The Motley Fool UK.

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Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.