HCP (DOC 0.62%) is a real estate investment trust, or REIT, specializing in healthcare properties. I've written several times before about how healthcare real estate is an amazing long-term opportunity and how HCP is my favorite way to invest in the space, but with most healthcare REITs (including HCP) at or near their 52-week highs, is now a good time to buy HCP or should investors wait until it gets cheaper?

HCP: The quick version

As I mentioned, HCP focuses on healthcare real estate and has 744 properties in its portfolio as of the latest available information. In terms of rental income, the portfolio is nicely divided between three core property types: senior housing, medical office, and life science.

Check out the latest earnings call transcript for HCP.

Nurse giving medication to elderly man.

Image source: Getty Images.

As a REIT, HCP pays a relatively high dividend yield, with a 4.7% annualized payout as of this writing, but its $1.48 annual dividend rate is well covered by its FFO (the REIT version of earnings).

The long-term case for HCP

In a nutshell, the American population is getting older. The proportion of the population that is made up of senior citizens is expected to grow dramatically over the coming decades. Also, older subsets of the population not only fuel demand for healthcare services but tend to spend more when they use them.

Therefore, HCP aims to capitalize on the long-term trend through its three main property types. Medical offices are an obvious beneficiary of rising healthcare demand, and senior housing is especially well positioned to take advantage of a growing senior population. Life science properties don't directly benefit from the aging population, but as healthcare investment continues to increase, this type of property will grow in demand as well.

HCP plans to invest aggressively but responsibly as opportunities arise. The company currently has a $1.2 billion development pipeline, much of which is already pre-leased, and with a solid balance sheet and strong credit, there's ample liquidity to pursue future opportunities as they arise.

Current valuation

As I mentioned, HCP is currently just under its 52-week high, which naturally raises the question of whether it's too expensive.

HCP Chart

HCP data by YCharts.

For 2019, HCP is projecting adjusted FFO of $1.73 at the midpoint of its guidance range. Based on the current share price, this translates to a valuation of just over 18 times forward FFO. While I wouldn't call this expensive, it isn't cheap by any means and is on the higher end of HCP's valuation range in recent history.

What could go wrong?

A major catalyst that has propelled the entire real estate sector upward in recent history have been interest rates. After rising to well above 3% in 2018, the 10-year Treasury yield has come crashing back down in recent months, taking REITs like HCP higher. Without getting too deep into a discussion of the dynamics of interest rates and dividend stocks, the short version is that as rates move higher, REITs tend to move lower, and vice versa.

The point? If interest rates spike higher again, I'd fully expect HCP to take a temporary hit, even if nothing changes with its business.

Of course, there are other risk factors, but most of them are short term in nature. However, it's important to point out that it's certainly possible for HCP's stock price to fall from its current level.

Is it a buy now?

To be clear, I don't think buying HCP right now is a bad idea. The long-term thesis remains intact, and its valuation isn't unreasonable given its future potential. In the interest of full disclosure, HCP is a large position in my portfolio and I don't see that changing anytime soon.

Having said that, HCP isn't as attractive as it was a few months ago when REITs were beaten down, and healthcare REITs have recovered more sharply than some other parts of the commercial real estate industry. The bottom line is that while HCP remains my favorite way to invest in healthcare REIT, it's no longer a cheap stock, and there may be more attractive opportunities in other subsectors of real estate.