Caretrust REIT Inc CTRE represents a strong investment opportunity for income-oriented small-cap investors seeking dividend growth, Canaccord Genuity analysts said while reaffirming their Buy rating on the stock.
Canaccord says the REIT's low payout ratio of 55 percent provides an ample cushion for the current 4.6 percent yield, while also supporting future dividend increases driven by 16 percent annual FFO per share growth expected for FY16 and FY17.
Meanwhile, the brokerage noted that CTRE's yield is currently 307 bps above the 10-year Treasury yield, versus the average spread since CTRE listed of 310 bps, representing a minimal difference of -3 basis points.
"[W]e forecast the dividend to grow roughly in line or slightly slower than core AFFO per share growth, as we project a still solid 10% dividend growth and 13% AFFO growth for CTRE in 2017," analyst Paul Morgan wrote in a note.
That said, Morgan, who has an $18 price target on the stock, believes CareTrust's opportunity set is currently expanding and competition diminishing as number of peers in the healthcare REIT sector are rebuilding their portfolios by divesting assets.
"While we believe robust EBITDAR lease coverage protection of ~2.0x with the company's top operator Ensign provides a high level of security, any deterioration in Ensign's business or negative shifts in SNF Medicare reimbursement trends could pose risks to CTRE's tenants," Morgan highlighted.
At time of writing, shares of CareTrust rose 1.74 percent to $15.80.
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