Real estate investment trusts (REITs) haven’t been particularly popular in recent years. With higher interest rates putting a lot of pressure on these mostly debt-heavy businesses, investors have largely fled the real estate sector in fear of dividend cuts.
However, while there are some businesses starting to crumble under years of financial pressure, there have been several exceptions. And now that interest rates are on a steady-but-firm downward trajectory, these exceptions have not only maintained dividends, but expanded them.
A perfect example of this is Primary Health Properties (LSE:PHP), which has continued its multi-decade-long streak of continuous dividend growth. And with the stock already climbing by double digits so far this year, reaching a new 52-week high, is now the right time to capitalise on its 6.6% dividend yield?
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Durable healthcare dividends
As a quick introduction, Primary Health Properties is a REIT that focuses on investing and leasing real estate linked to the UK healthcare sector. And while it does have some private practices in its client list, the majority of its properties are leased to the NHS.
By having the UK government as its top tenant, the firm has enjoyed exceptionally reliable cash flows since inception. And with plans to open hundreds of new neighbourhood health centres in the coming years, the business looks well-positioned to continue expanding its rental cash flows over the long run.
What’s more, with the firm’s promising acquisition and ongoing integration of its ex-rival’s (Assura) healthcare property portfolio, alongside near-perfect occupancy and an average lease duration of 9.4 years, it isn’t surprising management’s announced yet another dividend hike.
Combining all this with a slow but steady improvement in investor sentiment surrounding REITs, several institutional analysts have recently started hiking their share price targets. And while forecasts should always be taken with a pinch of salt, it’s nonetheless an encouraging sign of a potential buying opportunity.
What could go wrong?
Even with investor sentiment shifting, Primary Health Properties still has several challenges to overcome including, like most REITs, a large pile of debt.
On an interest coverage basis, the firm’s leverage is still within manageable territory. For reference, the interest coverage ratio sits above management’s minimum 2.5 target at 3.1 as of June 2025.
However, the group’s average debt maturity has been steadily falling since 2021, from 8.2 years down to 5.1. That’s still plenty of time for management to prepare. But it nonetheless signals an incoming wave of maturities that will either have to be refinanced or repaid.
In other words, even with good interest coverage, Primary Health Properties is still under some notable financial pressure. Even more so, given that almost all of its net earnings are already being paid out as dividends.
Suppose management’s forced to sell some assets to cover debt maturities? In that case, the subsequent loss of rental income from these divested properties could result in the dividend getting trimmed.
So where does that leave investors?
The bottom line
Even with today’s reduced interest rates, REITs are far from out of the woods when it comes to troubling debt burdens. But Primary Health Properties appears to be one of the few with reliable cash flows that grant near-perfect revenue visibility. That’s why I think this stock might be worth mulling over.
