Down 36% and yielding 7.8%, is that this FTSE 250 share a cut price?

One of many FTSE 250 shares I’ve eyed for my portfolio at varied instances in recent times is healthcare landlord Assura (LSE: AGR).

With its quarterly dividend now yielding 7.8% per 12 months, proudly owning the shares might be a fine addition to my passive earnings streams.

Then once more, a 36% decline within the share worth over the previous 5 years shouldn’t be spectacular.

Nonetheless, it might imply I now have a superb shopping for alternative. Ought to I act on it?

The reason why the share has declined

That kind of share worth decline for a corporation with a rising dividend doesn’t occur with out motive.

Within the case of Assura, I see a few key components.

One is its steadiness sheet. Web debt stood at £1.2bn on the finish of March, up from £0.7bn 5 years beforehand.

At a time of upper rates of interest, servicing that stage of debt is a danger to profitability. Nonetheless, all of Assura’s drawn debt final 12 months carried a weighted common rate of interest of solely 2.3%. Final 12 months, Assura had internet rental earnings of £143m and £29m of finance prices.

A second danger is the healthcare focus, as it’s a sector the place accusations of profiteering can imply there may be strain to decrease funding charges of return. Personally I don’t see that as a worrying danger. There’s a clear want for healthcare infrastructure. That must assist present or increased lease ranges for now no less than, in a easy case of provide and demand.

Not for the faint-hearted

Nonetheless, whereas the FTSE 250 firm’s services could also be well-suited to the faint-hearted, I don’t assume its shares are.

The online debt issues me lots. Assura is a property developer and landlord, so it’s comprehensible that it has borrowed to construct. The typical rate of interest appears first rate to me within the present atmosphere. However the long-term development in internet debt implies that not solely are curiosity prices substantial, the capital quantity to be repaid in some unspecified time in the future can also be sizeable.

Taking the previous 5 years collectively, throughout which profitability has moved round considerably, the corporate has generated below than £200m total in income after tax. That’s lower than £40m per 12 months on common. For an organization with £1.2bn in internet debt that doesn’t impress me.

Partly that revenue stage displays the price of funding annual dividend development previously a number of years. So freezing or reducing the dividend is an apparent means to assist fund a discount of the debt load – and I concern it might occur in some unspecified time in the future.

No plans to take a position

The primary attraction of Assura for me is its earnings, backed by a portfolio of properties more likely to profit from long-term demand and dependable tenants.

So any danger the steadiness sheet might finally pose to dividend sustainability is a pink flag to me.

For that motive, I can’t be including the FTSE 250 share to my portfolio. It might change into a cut price, however I don’t like the danger profile.