By Ian Salisbury
A 15% dividend increase might sound terrific. But it wouldn't be the main the reason to own shares of Welltower, a real estate investment trust focused on senior housing.
The stock is more like a growth REIT with a small yield, even after its 15% dividend hike. It's churning out profits, which could keep pushing the stock higher. But it's also richly valued and embarking on a riskier plan to operate senior housing, rather than just acting as a landlord.
Welltower has been rocketlike. Its 88% gain over the last two years is well ahead of the REIT sector's 14% increase, and it's beating the S&P 500, up 44% in the span.
Welltower hiked its quarterly dividend 15% to 85 cents a share on Monday. Even after the increase, shares only yield 1.7%, well below the equity REIT average of 3.2%. The REIT is ahead 5.3% this year, slightly trailing the sector's 7.8% gain.
The reasons to own Welltower would be twofold: demographic trends and a new operational business model that could bump profits above current estimates.
Welltower owns 159,000 units in the U.S., U.K. and Canada. About four million Americans retire every year, and they will need to move into retirement homes.
Welltower is also becoming more of a housing operator. The company said Monday that, after completing $11 billion in net new investments in 2025, it had closed or announced another $10.5 billion of deals in the first four months of 2026.
Much of the growth is with so-called SHOP operating leases where Welltower works with a partner to oversee properties. The SHOP arrangements can be more profitable than Welltower's traditional "triple-net" leases, where it collects rental income and operators handle maintenance, taxes, and insurance (hence the "triple net" term).
SHOP leases accounted for 75% of Welltower's net operating income last quarter, up from 57% a year ago. The company is generating "superior relative organic growth," Evercore ISI analyst James Kammert wrote in a note in April. Income from SHOP assets are fueling the gains, and the company is generating "industry-leading" growth in funds from operations, "sustained by sound senior housing fundamentals," he wrote.
Wall Street largely concurs. Analysts expect adjusted FFO to increase 17% to 18% over the next two years, healthy growth for a REIT. The stock has an average Buy rating with a $239 target, 22% above recent prices around $195.
There are blemishes to the story, though. One is that the stock is richly valued. Shares trade around 29 times forward FFO, compared to a sector average of 19 times. Welltower also trades at nearly two times the value of its holdings, while most REITs trade at a discount.
The premium is partly because Welltower is taking such a big role in operating its properties, using its scale to collect data and centralize functions like accounting.
But Welltower's flywheel could break down if input costs like food or labor increase -- or if the company expands too fast and ends up taking shortcuts when it integrates new properties.
Welltower's balance sheet and cash flows appear to be in good shape. The annual dividend payout eats up just 55% of adjusted FFO, providing plenty of leeway to increase it.
Welltower's leverage levels are also among the lowest in the sector, according to Evercore. Last month S&P Global affirmed the company's A-issuer credit rating and revised its outlook to positive from stable, noting debt-to-Ebitda ratio had fallen to 3.6 times from 4.3 a year ago. (Ebitda is earnings before interest, tax, depreciation and amortization.)
Welltower has fueled growth by issuing stock. That's good for the balance sheet since it keeps debt levels relatively low, but it could also mean more earnings dilution and higher costs for covering its dividend. Welltower had 705 million shares outstanding in March, up from 697 in December 2025, and 492 million in 2022.
A short-seller, LandandBuildings, recently argued the stock was grossly overvalued and lobbied for curbs in executive compensation. Last month investors concurred and declined to ratify executives' pay in a shareholder vote, although the results weren't binding. Welltower didn't immediately respond to a request for comment.
Welltower's rich valuation makes it a somewhat riskier REIT, and its low yield doesn't provide much cushion if the stock takes a dive. The firm has the right strategy for riding the senior housing boom. Flawless execution may be what's needed to keep the stock moving up.
Write to Ian Salisbury at ian.salisbury@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
June 03, 2026 08:25 ET (12:25 GMT)
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