2 defensive income investment trusts I'd buy for my ISA
Healthcare and property are typically considered the market's two most defensive sectors, which is why I'm attracted to healthcare real estate investment trusts Impact Healthcare(LSE: IHR) and Target Healthcare(LSE: THRL).
These two companies offer the perfect blend of income from property with the long-term durability of healthcare, two qualities few other companies can match.
Target Healthcare's goal is to "acquire a diversified portfolio of high-quality modern care homes providing excellent accommodation standards" while at the same time generating a sustainable income stream from rents for investors and maximising shareholder returns.
Today the company reported its results for the six months to 31 December and gave updates on these critical objectives. At the end of 2017, EPRA net asset value per share was 104.4p, up 2.5% and the trust achieved a total return for investors during the period of 5.7% including share price appreciation and dividends. Five new properties were added to the rent roll in the period, including the completion of one development asset and four acquisitions, taking the total value of Target's property portfolio to £335m. Three new tenants were added during the period increasing the "diversity of portfolio income" to 19 tenants with an average weighted unexpired lease term of 28.9 years and loan-to-value ratio of 24.2%.
Based on the numbers reported by the firm today, shares in Target are currently trading with a dividend yield of 6.4% and a discount to net asset value of 1%. Granted, the company is never going to win any awards for earnings growth, but its sustainable income stream from property (locked in for nearly three decades) is highly attractive. Also, a robust and unleveraged balance sheet should help management grow the dividend further through the acquisition of new properties.
With this being the case, I'm considering adding Target to my ISA portfolio as a defensive income play.
6% dividend yield
Impact is also targeting a dividend yield of 6%. The company only went public at the beginning of 2017, and it still flies under the radar of most investors. Indeed, since hitting the market, the share price has hardly budged. Still, management is targeting a dividend of 6p per share per annum, paid in quarterly instalments, which equates to a dividend yield of 6% based on today's share price of 100p.
Like Target, Impact owns a portfolio of care homes, and while management does have plans to expand the portfolio gradually over the next few years, the company is limited to borrowing 35% of the gross value of its asset portfolio, which in my view makes this an exceptionally defensive, fiscally responsible business.
What's more, all of the company's clients are on long-term leases with a weighted average lease term of 19.2 years and an annualised rent roll of £11.9m. There are annual rental uplifts based on the retail price index with a floor of 2% and cap of 4% per annum. So, just like Target, Impact offers a defensive income stream that is set to grow with inflation and is tied to multi-decade contracts. The firm's strong balance sheet only adds to its appeal.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.