Some of my holdings are purely dedicated to dividend paying stocks that make me a passive income. One such stock I am considering adding is Primary Health Properties (LSE:PHP).
Healthcare properties
Primary Health Properties is a real estate investment trust (REIT) that specialises in the ownership, development, and rental of modern primary healthcare facilities in the UK and Ireland, such as GP surgeries.
As a quick reminder, a REIT is a company set up to make money from income-producing properties. Investors gain exposure to the real estate market by buying shares in a REIT, and REITs gain access to capital that can be used to purchase more property and grow. What I like about REITs is that they must return a large chunk of profits as dividends. I think REITs are excellent stocks to buy to make a passive income, although I do understand that companies can cut or cancel dividends at any time.
As I write, PHP shares are trading for 135p. At this time last year, the shares were trading for 10% higher at 149p. Macroeconomic factors such as soaring inflation and rising costs have pressured all FTSE shares recently, so I’m not worried about the share price dip.
Risks
Primary Healthcare Properties could see its portfolio and uptake affected by the burgeoning virtual healthcare market. Recent technological evolution has led to a spike in these new services that mean patients with a smartphone or laptop can access primary care facilities. As digital transformation continues, I’d expect more of these services to lead to fewer people physically attending GP surgeries. This could affect dividends and any passive income.
Another risk of note for PHP is that government guidelines around healthcare and regulations could change. This could put a cap on any rents and profits that firms like PHP could make. This would affect performance and any return I hope to make.
A great passive income option
At current levels, PHP shares look cheap to me with a price-to-earnings ratio of just 13. In addition to this, it sports an enticing dividend yield of over 4%. The FTSE 250 average yield is just under 2%, which means PHP offers over double this amount.
I understand that past performance and dividend record are not a guarantee of the future. However, I like to look at them when determining investment viability. Looking back, PHP has lifted yearly dividends for 25 years in a row! Coming up to date, analysts reckon the yield will surpass 5% in 2023. Yesterday’s interim report made for excellent reading too with revenue, profit, and dividends all increasing compared to the same period last year. Continued performance like this would boost dividend payments and any passive income.
PHP shouldn’t have collection issues as the government pays the rent on its facilities. In addition to this, the ageing and rising population means that need for medical facilities will likely continue to increase in the years ahead. There is also a shortage of medical facilities, meaning PHP is in a unique position to continue acquiring and renting out properties, and in turn, growing organically.
Overall, I believe PHP is one of the best stocks for me to buy now to make a passive income. I’d happily add the shares to my holdings.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Primary Health Properties. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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