Will Welltower Inc. Raise Its Dividend in 2017?

Image source: Getty Images.

Stocks with high dividends are great, but as long-term investors, we're more interested in the future. Welltower (NYSE: HCN) pays a generous 4.4% dividend yield, and has done a good (but not perfect) job of increasing its payout over the years. Will there be another increase in 2017? While there is no way to know with 100% certainty at this point, let's take a look to see how likely a 2017 dividend hike is.

Welltower in 2016

Welltower has 1,490 healthcare properties in its portfolio, located throughout the U.S., U.K., and Canada, and is the largest real estate investment trust (REIT) specializing in healthcare. The majority of the portfolio is composed of senior housing properties, with significant holdings in long-term/post-acute care and outpatient medical facilities.

Eighty-eight percent of Welltower's portfolio is made up of private-pay sources, which are more predictable than those relying on government programs. The company has an investment-grade credit rating (Baa1/BBB/BBB+) and has a debt-to-capitalization ratio of just 39.6%. And Welltower has done a good job of consistently increasing its earnings (FFO) while simultaneously reducing its leverage.

Image source: Welltower presentation.

My point is that Welltower is a stable business, designed to produce predictable, increasing income. With the 75-and-up population in the U.S. expected to double over the next 20 years, it's also safe to assume there will be no shortage of demand for senior housing going forward.

Expectations for the rest of 2016

As of the end of the second quarter, Welltower expects its FFO and FAD to fall in the ranges of $4.50-$4.60 and $3.95-$4.05, respectively, both representing 3%-5% increases over 2015.

Welltower increased its dividend by 4.2% in 2016 to a quarterly payment of $0.86 per share. This translates to an annual payment of $3.44, well in the comfortable range, given the above estimates. While it's a little early for 2017 projections, Welltower's business model produces income that rises pretty steadily, so I'm confident saying that Welltower will have enough money to afford a dividend increase.

An almost-flawless 45-year record of dividend increases

It would be tough to find a company with a better track record of performance than Welltower. The company has been around for 45 years, and has averaged a total return of 15.6% during that time. To put this in perspective, a $10,000 investment in Welltower's IPO would be worth more than $6.8 million today.

As far as the dividend is concerned, the history isn't exactly flawless, but it's pretty close. As you can see in the chart below, there were years where the dividend wasn't increased, but there is a clear upward trend. Welltower has increased its dividend at a compounded rate of 5.1% per year, and hasn't cut its dividend since the 1980s.

Image source: Welltower presentation.

For a more up-close look at the recent history, here are the details of Welltower's most recent dividend increases:

Data source: Welltower.

The dividend is likely to increase, but by how much?

One of the main reasons I like investing in REITs is their predictability. Welltower and its dividend is a good example of this -- the company expects FFO and FAD growth of 3%-5% in 2016, so its dividend increase of 4.2% fell right into that range. I'll be a little more certain once Welltower issues guidance for 2017, but given its recent growth and dividend history, I expect another increase of approximately the same magnitude in 2017.

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Matthew Frankel owns shares of Welltower. The Motley Fool recommends Welltower. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.