THW: Continues To Be A Safe Bet For Income Seeking Investors

My previous coverage of Tekla World Healthcare Fund (NYSE:THW) was on 24th February, 2022, when the stock reached a 52-week low of $13.29. Since then, it rose by more than 24 percent to reach $16.5 on April 21st, before dropping down to $15.6 on 3rd May. So, I’ve been lucky to accumulate the stock at a very low price starting from a few days after I covered it.

As I mentioned last time, Tekla World Healthcare Fund was poised for steady price growth due to its wise stock selection & diversification, and steady monthly dividend payment with close to double digit annual yield. At that time, THW had a Trailing twelve month (TTM) dividend yield of 10.15 percent, and a four year average yield of 10 percent. In 2022, the average yield so far is 9.38 percent.

I witnessed a particular trend in most healthcare funds in the past 10 to 13 weeks. Healthcare funds had a steep fall in the last three weeks, whereas they had registered a slow but steady growth prior to that. However, the steep fall in the past three weeks wiped away the growth of the first seven to 10 weeks. However, Tekla World Healthcare Fund has been able to buck the trend. The major reason behind this, I believe, is its dividend payment.

Tekla World Healthcare Fund has been paying a monthly dividend of $0.1167 since September, 2015, i.e. for the past 80 months. As the stocks of the healthcare sector are not performing very well in the equity market, there was a little bit of doubt about this dividend amount. However, THW was able to continue with the same amount of dividend. It announced its April dividend on 11th April, with a dividend record date on 21st April. As a result, shareholders stayed interested in this stock during the period.

Tekla World Healthcare Fund did the same thing in March 2022. It announced the same amount ($0.1167) as dividend on 10th March, and the dividend record date was 20th March. As a monthly dividend payer, this fund gets benefited for 10 to 12 days every month, in case the dividend declared is in line or beats expectation. In addition, THW also benefited from extended buyback of its existing shares.

The already existing buyback program, which allows Tekla World Healthcare Fund to buy back upto 12 percent of its existing share, is expected to enhance the dividend, as the profit will get distributed over a lesser number of equity shares. This expectation again motivates existing shareholders to hold back their shares, which in turn makes the share costlier to acquire.

As this buyback extension is announced on March 22nd, just after a day of the March dividend record date, the shareholders, who were planning to sell the share as soon as they ensure the March dividends, again held back their holdings. Thus, the THW shareholders stayed interested during the entire period of March 10th to April 21st, 2022.

In addition to these, Tekla World Healthcare Fund is quite well diversified. Almost one-fourth of its investments are in equity markets outside the United States. Thus, the poor performance of healthcare stocks in the US market did not impact it harshly. A comparison of the last three months’ price performance of all the four healthcare funds of Tekla Capital Management LLC re-emphasize this.

In addition to THW, Tekla Capital Management LLC also manages Tekla Life Sciences Investors (HQL), Tekla Healthcare Investors (HQH), and Tekla Healthcare Opportunities Fund (THQ). Out of these four funds, only Tekla World Healthcare Fund has significant investments in global equity markets. Buyback program was extended for a year in all the four funds. While HQL and HQH pay quarterly dividends, THW and THQ pay monthly dividends. Baring THQ, all other funds have close to double digit annual yield.

Despite all these, only THW has been able to post positive price growth of almost two percent during the past one month, and growth of almost three percent over the past three months. During the past one month, THQ, HQH, and HQL recorded a price drop of 4.5 percent, 5 percent, and 6.5 percent respectively, in sync with most healthcare funds. Over the past three months, the price loss of THQ, HQH, and HQL were 7 percent, 10 percent and 14 percent respectively. As mentioned earlier, THW’s price growth was more than 16 percent since February 24th, the last time I covered this stock.

Another interesting fact to note is that THW’s top five investments - UnitedHealth Group Inc. (UNH), Roche Holding AG (OTCQX:RHHBY), Pfizer Inc. (PFE), AstraZeneca PLC (AZN) and Thermo Fisher Scientific Inc. (TMO) - have positive returns in the range of 11 percent to 28 percent during the past one year. If a healthcare fund’s top 25 percent investments deliver such high growth at a time when the overall healthcare sector is in a downward rally, the fund can be trusted to produce good returns.

Moreover, as mentioned in my last coverage too, the total return of Tekla World Healthcare Fund has always been positive and in sync with S&P 500 total return. In addition to price growth, total return includes rights offerings, dividends, interest, and other distributions. The total return was impressive during the covid-19 pandemic too, which I covered in detail in my last coverage. THW also recorded a price growth of 23 percent over the past three years. Thus, this fund has ample reasons to make shareholders hold on to it.

Needless to say, I am extremely impressed with this fund, and I have every reason to hold on to my existing investment, and accumulate further. This stock gives me ten reasons to strongly back it - i) close to double digit yield, ii) monthly dividend unchanged for the past 80 months, iii) a rare exception to healthcare funds that grew in April 2022 as well as in past three months, iv) relatively better protected from market risk, v) wise stock selection vi) major investments generating strong returns when the overall healthcare sector is in a downward rally, vii) almost guaranteed positive total return, viii) successfully overcoming covid-19 pandemic related market crash ix) strong enough performance during the past 3 years and x) extended buyback program expected to resist any price loss.

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