Income is a big part of investors' returns. Stocks, mutual funds and fixed income ideas in this column are featured because they are relatively solid in their ability to pay dividends or interest. We're giving income investors a resource to start their research for investments that give better yields with lower risk.

October 20, 2010 - HCP, Inc. (HCP-NYSE) operates as a real estate investment trust in the United States. The company, through its subsidiaries and joint ventures, invests in health care-related properties and provides mortgage financing on health care facilities. It acquires health care facilities and leases them to health care providers.

The firm has elected to be treated as a REIT for federal income tax purposes and would not be subject to income tax, if it distributes approximately 90% of its taxable income to its share holders. HCP, Inc. was founded in 1985 and is headquartered in Long Beach, California.

HCP saw earnings decline in 2006 and 2007, but the trend now is up. 2008 showed 82 cents (above the 74 cents of '07), then 89 cents. This year, look for $1.00, then $1.05 in 2011. Quarterly earnings will be out soon. Expect 26 cents for the third period, compared to 22 cents last year in the third. For the final quarter, estimates are for 26 cents again vs 27 last year in the fourth.

HCP is doing well in this difficult economy. Second quarter operating income improved by 5.9% with the help of a one-time payment that added about 2%. All 5 property types the company owns or manages showed increases with the hospital sector leaping ahead by 14%. While revenues were higher, costs were lower as general and administrative expenses were cut.

The company leases its buildings with triple net lease contracts. That means a property manager pays annual rent increases, insuring HCP future growth in earnings. With the Sunrise suit settled, and a new property manager in place for 27 of its facilities, HCP will see higher revenues from those properties. On the negative side, the company will have to re-lease 1% or 2% of its properties at lower levels because the economic distress hasn't exempted HCP from vacancies.

If you look at demographics, they seem to be carrying HCP to ever higher revenues and profits. Baby boomers are aging, needing more healthcare, more hospitalization, and more senior housing. Analysts see the next decade as almost golden since demand will only increase.

The dividend here is dependent on funds from operations, not earnings. For the last 10 years, the dividend has improved, going from $1.47 in 2000 to $1.84 last year. This year, the fully paid dividend will be $1.86, giving a yield of 5.1%. Next year, expect $1.89.

More numbers: Market Cap is $11.35 billion. Forward P/E is 36. Price to sales is 9.63. Price to book is 1.95. Return on equity for the last 12 months was 2.52% and Return on assets was 3.13%. Revenue was $1.19 billion. Total debt is $5.38 billion which is 46% of capital. Current ratio is 6.23. Book value per share is $18.92. Beta is 1.3. The stock is up 19.61% in the last 52 weeks. There are 310.07 million shares outstanding with a Float of 307.37 million. Insiders own .66% of the stock and Institutions have 84.90% of the Float.

Income investors will find this story intriguing. There's a possibility of some capital gains in this stock as well as a good dividend, one that increases every year. Once the economy revs again, expect leases to roll at higher levels, and increase faster revenue growth for HCP.

- Company Web site: www.hcpi.com

- Ted Allrich