5 Healthcare Real Estate Stocks for High Yield and Long Term Growth
The world of real estate investment trust – REIT – stocks is typically divided into the sector types of properties in which the individual REIT companies specialize. One sector of commercial real estate which has provided outstanding investor returns recently and has very attractive long term potential is the healthcare REITs. The driving force behind the healthcare commercial property market is the aging of America. The number of older Americans is expected to increase at twice the rate of the overall population. To grow their businesses from this trend, the healthcare REIT companies are actively developing and buying senior housing facilities and skilled nursing care centers. The companies may also own medical office buildings, laboratories for medical research and hospitals. But the money and growth are in the senior service facilities.
Over the last few years, the three largest healthcare REIT companies have been very active in acquiring smaller companies or existing healthcare real estate. These three companies – Ventas (VTR), HCP Inc. (HCP) and Healthcare REIT (HCN) have grown to be large cap stocks with the financial resources to make large acquisition deals. At the other end of the spectrum, we will discuss two of the smaller companies in the healthcare REIT business.
HCP, at the time of this writing is the largest healthcare REIT with a market cap of $16.3 billion. HCP currently owns approximately 1,000 properties in 46 states. This healthcare REIT has a higher percentage of medical office and life science buildings in its portfolio, compared to the other large REITs. HCP has increased the dividend for 25 consecutive years. For 2012, the payout increased to 50 cents a quarter, 4 percent from 2011. In 2011, HCP reported funds from operations of $2.69, easily covering the current dividend. The dividend yield is 5.0 percent.
Ventas is the number two healthcare REIT with a market value of $16.1 billion. Ventas owns 1,300 facilities in the U.S. and Canada. In 2011, the company completed $10 billion worth of acquisitions. The dividend has increased from an annual rate of $1.30 in 2004 to $2.48 – 62 cents quarterly – in 2012. Company management projects funds from operations of about $3.65 for 2012. The current yield for VTR is 4.4 percent.
Healthcare REIT is the oldest healthcare REIT and is currently valued at $10.5 billion. The company owns 900 properties in 42 states. Of this portfolio, 77 percent is senior living or skilled nursing facilities. In 2011, Healthcare REIT generated funds from operations of $3.40 per share and paid $2.83 per share in dividends. For 2012, the dividend increased 3.5 percent to 74 cents quarterly. HCN has a current dividend yield of 5.4 percent.
Universal Health Realty Income Trust (UHT) is the smallest healthcare REIT with a market cap of about $500 million. This company owns acute care and rehab hospitals, surgery centers and medical office buildings. No senior housing in this portfolio. In 2011, the company generated funds from operations of $2.61 per share and paid dividends of $2.42 per share. The dividend for UHT has increased at a slower rate than with the larger healthcare REITs. On the flip side, the current yield is an attractive 6.25 percent.
Medical Property Trust (MPW) might appeal to the high yield investor, with a current 8 percent plus dividend yield. The company has a $1.3 billion market cap and a portfolio of 58 properties, primarily hospitals. At the end of 2008, the dividend was reduced from 27 cents quarterly to 20 cents, where is has remained. Adjusted funds from operations dropped to 72 cents per share in 2011, down from 81 cents in 2010. Without better results in 2012, the current 80 cent annual dividend may be in some danger. This REIT is for the risk taking investor. Bank of America analysts initiated coverage rated the stock a “Buy” on February 1, 2012.
Tags: HCN • HCP • Healthcare REIT • healthcare REIT companies • Medical Property Trust • MPW • real estate investment trust • Universal Health Realty Income Trust • Ventas • VTR