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One FTSE 250 The stocks I’ve decided to add to my holdings the next time I have some cash to invest are Target Healthcare REIT (LSE: THRL). This is why.
Nursing home properties
Target is a real estate investment trust (REIT), which basically means it owns and operates properties to generate income. What I love about REITs is that they must pay out 90% of profits to shareholders. This is why I already have positions in a few REITs as part of my current portfolio. I see them as a great way to increase my passive income. Target owns and operates 97 nursing homes nationwide.
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As I write, Target shares are trading at 76p. They are down 14% in a 12-month period, having been trading at 86p at this time last year. Many FTSE 250 stocks have struggled in recent months as macroeconomic volatility hits the markets. This has created opportunities to buy quality stocks, like Target, at cheaper prices.
Why you would buy these FTSE 250 shares
To start, I believe Target operates in a thriving market sector. Research indicates that the UK has an aging population, and this should benefit care home providers and companies like this. In that case, Target could see demand for its properties and spaces in these homes increase, which, in turn, should also increase its revenue. This growing number of seniors could even help drive growth and increase profitability in the long term.
In addition to the aging population, due to the nature of the properties Target owns and operates, most of its leases are long-term. This is ideal for investors as it offers a greater sense of peace of mind and assurance that returns should be consistent and stable.
Speaking of profitability, Target’s current dividend yield stands at 8%, outperforming the index. For context, the average return on the FTSE 250 is closer to 2%. However, I am aware that dividends are never guaranteed.
Finally, Target stock looks like a good value to me right now with a trailing 12-month P/E ratio of 12. If current year forecasts hold true, this could drop to eight, making the stock even more attractive. I am aware that forecasts do not always come true.
Risks and final reflections.
I’m bullish on the stock, but I’m aware of a couple of risks that could hinder Target. Firstly, the struggle to recruit nursing staff in the UK is intensifying. Many nurses are moving abroad in search of better salaries and lifestyles, or leaving the profession altogether. Target may have long-term lease agreements, but nursing homes can’t operate without properly qualified staff.
Another problem for Target is that the commercial real estate sector appears uncertain due to high interest rates. This could damage trust, as well as impact performance and growth. I will keep an eye on developments here.
To conclude, Target is one of the FTSE 250 stocks on my radar. A potentially lucrative sector with growth potential, a good level of profitability and a decent valuation helped me make a decision regarding Target. I’m aware that macroeconomic headwinds could create some turbulence, but over the long term, I would expect to see earnings and dividend growth.