Physicians Realty Trust (DOC +0.00%) and Global Medical REIT (GMRE +1.40%) are real estate investment trusts (REITs) that deliver a nice combination of revenue growth and dividends yielding above 5%. Despite these positives, both REITs are facing some pressure at the moment.
The quick rise in interest rates over the past year turned investor sentiment toward REITs negative. Higher interest rates make it harder for REITs to borrow money to purchase or develop properties. They also make bonds and other high-yielding securities that investors might consider instead more enticing.
Considering each of these companies' financial strengths and the recession-resistant nature of healthcare companies, I think their stocks are undervalued, particularly if the rate of interest rate hikes continues to slow. Here's why these two dividend stocks are worth buying and holding forever.
1. Physicians Realty: What the doctor ordered for income investors
Physicians Realty owns medical offices, clinics, outpatient care facilities, small acute-care hospitals, ambulatory surgery centers, specialized hospitals, and rehabilitation clinics. Most of the company's properties are on medical campuses with other healthcare facilities or a hospital. Of the company's 290 properties, 122 are single-tenant medical office buildings and 115 are multitenant medical office buildings. The trend toward more outpatient care benefits its tenants and, by proxy, Physicians Realty.
NYSE: DOC
Key Data Points
The company said 94.9% of its buildings were leased as of the third quarter. Through nine months, the company reported revenue of $394 million, up 15.3% year over year, and normalized funds from operations (NFFO) of $188.5 million, up 5%. In the third quarter, the company said it had $131.5 million in revenue, up 14.1% year over year, while normalized FFO was $61.4 million, up from $58.1 million in the same period in 2021.
Physicians' share prices are down more than 10% over the past year, but up more than 7% so far in 2023. The company's quarterly dividend of $0.23 a share equals a yield of around 5.9%. It is well covered with an NFFO payout ratio of 85%.
DOC FFO Per Share (Quarterly) data by YCharts
2. Global Medical's business model is healthy
Global Medical specializes in medical offices, leasing them to healthcare systems and physician groups. As of the third quarter, the company owned 189 buildings and had 269 tenants. Over the past three years, Global has seen strong growth in revenue and funds from operations.
NYSE: GMRE
Key Data Points
The company's portfolio is 96.8% occupied, with a remaining average lease term of 6.4 years. It has a 79% fixed-to-total-debt ratio of 79%, which is low for a REIT. The company specializes in renting out medical office buildings in secondary markets where healthcare companies don't have as much competition and there's likely to be more growth.
Through nine months of the fiscal year, Global reported AFFO of $51.5 million, up 14.4% year over year, or AFFO per share of $0.74, compared to $0.71 in the same period last year. The company also grew revenue by 18% year over year, to $101 million.
Global Medical's shares are down more than 31% over the past year, but the stock is up more than 16% so far in 2023.
Global offers an above-average quarterly dividend, which it raised by 2% last year to $0.21 a share, delivering a yield of around 7.5%, more than 4 times the S&P 500 average dividend of 1.74%. Global's dividend is well covered with an adjusted funds from operation (AFFO) payout ratio of 84%.
What makes these two REITs buy-and-hold candidates?
Both companies should benefit from the long-term trend toward more healthcare spending as the population ages. According to a Centers for Medicare and Medicaid Services (CMS) forecast, U.S. spending on healthcare is expected to have a compound annual growth rate (CAGR) of 5.4% through 2028, reaching a $6.2 trillion market by that time.
While these healthcare REITS have both seen their share prices rise in 2023, it's still a good time to get in on these stocks while their dividend yields are high. Their outsized dividend yields make it easier on investors to hold on to the stocks for the long term, as it allows investors to make money while waiting for the stock's shares to appreciate.
