Surprise Divi Boost - Primary Health Properties (PHP)
11/2/2010
(119264)
Surprise Divi Boost
A pleasant surprise from Primary Health Properties with news that the final dividend is being raised and brought forward. A second interim dividend is to replace the final, and is being raised 0.25p to 8.75p (against expectations of 8.5p), taking the total payment from the expected 17p to 17.25p.
It might be a modest advance, but it is nonetheless welcome, and clearly reflects the board’s confidence in the success of yesterday’s £24m acquisition from CareCapital.
A note from paid-for research group Hardman & Co suggests the acquisition was important because the £60m rights issue in September had left the group undergeared and with cash earning much less on deposit than the cost of long term debt. Hardman estimates that the current portfolio is worth around £366m, and the company has financial resources to take it to about £500m.
At an average size of £1.7m each, the CareCapital properties are somewhat smaller than PHP’s other recent additions. All are purpose built but not new, and should have potential for modest improvements which should allow rental income to rise slightly faster than inflation.
PHP will have first refusal on future primary care developments by CareCapital for three years. This should prove a useful source of property additions to speed growth.
Hardman has not raised forecasts, and with the shares up to 297p today, the prospective dividend yield for 2010 is 5.9% (assuming a 17.5p total), but Hardman expects future dividends to rise as rental increases feed through to the bottom line.
It is clear that the PHP board is well aware of the need to generate returns for investors. It would be surprising if the decision to raise the 2009 payout was not a signal that the Hardman 17.5p payout forecast for 2010 will be exceeded modestly.
Since the shares can be held in an ISA, this only adds to the attractions of the high and safe yield on PHP. Underlying property values seem to be edging up, and the shares remain worth buying for the yield and modest capital growth prospects.
I have a holding in PHP.
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