Position Review: HCN

By | September 4, 2017

Welltower Inc (HCN)is a small position in my nontaxed account … the position was initiated this year with a modest 3% gain expectation in addition to dividend – my cost basis of $63.37 yields 5.49%, so i am looking for ~8.5% total gain in 2017.  My position is up 16.25%.  Question for this review is:  do i sell 50% as my common trimming practice above annual target gains?

First the risk / reward ratio needs to be established loosely …

  • eTrade puts the 1 year target between $68 and $86 with a $75 target.  … so at Friday’s price, that is <2% gain to target, a 7.6% downside risk, and an optimistic upside of 16.7%.
  • A recent SA article from Sure Dividend, stated the following
    • “As a result, future returns will be generated primarily from FFO growth and dividends. A breakdown of potential returns is below:
      • 4%-6% FFO growth
      • ~5% dividend yield

      Under this assumption, investors can reasonably expect 9%-11% total annual returns. Not surprisingly, half of the stock’s total returns will come from dividends, which is fairly typical for a REIT.”

  • Investments within the last 30 days include:  Zacks, Thomson Reuters and Ford Equity
    • Ford = HOLD, a recent downgrade (9-02) from Buy to Hold
    • Thomson Reuters = HOLD (with analysts coming in at Strong Buy 3, Buy 2, Hold 14, Reduce 3, Sell 0)
      • Note … they do not have any buys on comparable REITs … only Hold and Sell
    • Zacks = HOLD
  • I could not review a REIT without Brad Thomas’ insights https://seekingalpha.com/article/4028154-welltower-taking-charge
    • His analysis is a bit old with HCN in the mid $60s
    • He was not overwhelmingly positive at that point
  • Hoya Capital published a review on the healthcare REITs in early August 2017

Conclusion:

  • The probability of higher prices is lower than the risk of lower prices
  • My annual gain targets were surpased 2x
  • Trim the position

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