Now that much of the agenda and risk is already out on the table with health care reforms, the healthcare sector is starting to look like a viable investment opportunity. And lest you think it’s just for biotech stocks and insurance giants, let me remind you that there are some great dividend stocks to be had here – and one of my favorites is Medical Facilities Corporation (MFCSF). The stock currently has a dividend yield north of 10%!
I’ve recently circled the wagons around Canadian Income Participating Securities (IPSs). IPSs are listed tradable units that comprise both a bond and a share of common stock into a single unit with the express purpose of paying out a sizeable income stream to the unitholder on a monthly basis. So far, for the past 10 years, it’s the hottest asset class of all. I mean, what’s not to love about a rock-steady business that pays a double-digit yield on a monthly basis?
Enter Medical Facilities Corp.While the company has headquarters in Toronto, Canada, MFCSF is yet another unique model of a business that is based in Canada but conducting 100% of their operations in the lower forty-eight states. It is similar to a Canadian Income Trust, but it provides a cash flow from business to investors by issuing IPSs, which represent a direct interest in a dividend-paying common share and interest-paying subordinated note.
Why there aren’t more of these hybrid income securities with mouth-watering yields, I don’t know, but they are a great fit for investors with a long-term strategy of capturing high levels of reliable cash flow in businesses that throw off steady returns — even during periods of economic turmoil.
The company currently operates four specialty surgical hospitals in Sioux Falls, Rapid City and Aberdeen, South Dakota; and Oklahoma City, Oklahoma, as well as two ambulatory surgical centers in Irvine, California.
Now, MFCSF specialty hospitals are dramatically different from traditional hospitals. First, the hospitals attract patients by offering “five-star hotel” surroundings and service. They’re able to do this by focusing on a limited number of procedures — its surgical hospitals deal with the areas of neurosurgery, pain management, orthopedic surgery, and podiatry; and its ambulatory surgical centers offer outpatient procedures in the areas of general surgery, gastroenterology, gynecology, otolaryngology and plastic surgery.
Basically, MFCSF hospitals provide patients with an alternative to traditional hospital care. And their surgeons also benefit from this type of work environment as well as receive some perks, including the ability to schedule consecutive cases without pre-emption by emergency procedures, simplified administrative procedures and efficient turnaround time between cases. Funny how when left to the forces of competition, even the healthcare industry will find better ways to operate and make money.
Thanks to its unique business model, facility service revenue for the third quarter of 2009 increased 1.3% to $49.0 million — compared with $48.4 million year-on-year. Offsetting gains in revenue from higher case volumes was an increased proportion of lower-paying Medicare/Medicaid cases. In the third quarter, the payout ratio stood at 89% as the company expanded facilities and equipment and continued its ongoing buyback of IPS securities to reduce interest expenses.
Looking forward, Medical Facilities Corp. stands to benefit from two powerful trends within the healthcare industry. The first is that overall healthcare spending in the U.S. will double from $2.4 trillion in 2008 to $4.4 trillion by 2018. And the second and more compelling trend is that more than eight out of 10 surgeries are now performed on an outpatient basis. MFCSF is structured with a contract outpatient surgery center business model, where an expanding amount of current and future spending is being targeted. So it stands to benefit nicely from this trend.
Shares of MFCSF have held their ground during the recent market decline, staying within pennies of its 52-week high. The company will paid a cash dividend of about 92 Canadian cents per share on March 15, but you should consider buying in soon to take advantage of the next cycle.
As of this writing, Bryan Perry recommended MFCSF to subscribers of his Cash Machine investment newsletter.
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