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Why Rite Aid, Senior Housing Properties Trust, and PIMCO High Income Slumped Today

By Dan Caplinger – Apr 2, 2019 at 4:32PM

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New challenges face investors in all of these investments.

Wall Street gave investors a mixed bag of performance on Tuesday, with losses for the Dow Jones Industrial Average but gains for the Nasdaq Composite. A surge in cryptocurrency prices shifted market participants' attention from stocks, and some fears about President Donald Trump's comments about potentially closing the Mexican border seemed to weigh against a generally positive mood about the economy. Yet some investments lost ground, and Rite Aid (RAD 0.91%), Senior Housing Properties Trust (DHC -3.31%), and PIMCO High Income (PHK -1.49%) were among the worst performers. Here's why they did so poorly.

Rite Aid takes collateral damage

Shares of Rite Aid fell 9% in the wake of bad news from one of its closest competitors. Walgreens Boots Alliance said this morning that its earnings had fallen during its most recent quarter, citing negative conditions in the drugstore market that weighed on its ability to produce bottom-line gains. The same arguments that Walgreens made apply equally well to Rite Aid's drugstores, especially as companies focus their attention on prescription drug costs. Moreover, Rite Aid has problems of its own that put it in an even more precarious position. With a share price that's been locked below $1 for nearly all of 2019, Rite Aid will have trouble bouncing back from its massive challenges.

About a dozen people behind a table with Kidcents bags, along with banners promoting Special Olympics and Rite Aid.

Image source: Rite Aid.

Senior Housing slashes its dividend

Senior Housing Properties Trust saw its stock lose more than 15% of its value after it announced that it would transform its relationship with its biggest tenant and cut its dividend by more than half. The real estate investment trust is restructuring its business arrangements with Five Star Senior Living so that existing leases will be replaced with management agreements. Five Star will also give an 85% stake in the company to Senior Housing, with the REIT keeping 34% of Five Star's shares and distributing a 51% position to its own shareholders. However, because the arrangement also cuts Five Star's rent, the REIT expects to pay just $0.55 to $0.65 per share in annual dividends going forward, down from $1.56 per share. For income investors, the move is a slap in the face that warrants the share-price decline.

A premium closed-end fund loses its luster

Finally, shares of PIMCO High Income dropped 12%. The closed-end fund announced that it would make a monthly distribution of income for April that's only about three-quarters of what it had paid the previous month, with PIMCO saying only that the reductions take into account "many factors" that include the overall market environment and the fund's economic and market outlook. Investors had bid up shares of PIMCO High Income to a premium of 48% above its net asset value as of Monday's close, as they have long liked the above-market distribution yield the fixed-income fund pays. The move isn't the first such cut that PIMCO has made, and even with today's news and the subsequent share price drop, PIMCO High Income has a lot further to fall before it would become any sort of bargain for investors.

Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Stocks Mentioned

Rite Aid Stock Quote
Rite Aid
$4.44 (0.91%) $0.04
PIMCO High Income Fund Stock Quote
PIMCO High Income Fund
$4.77 (-1.49%) $0.07
Diversified Healthcare Trust Stock Quote
Diversified Healthcare Trust
$0.77 (-3.31%) $0.03

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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