Healthcare stocks are generally popular among people in retirement because they can usually outperform in any economy. Mounting fear of a global economic slowdown has made the sector even more popular than usual among retirement-age investors with little room for error.
Growth stocks based on groundbreaking new gene therapies, surgical robots, and new digital health start-ups get lots of attention, but they’re not smart investments to make when you’re in or near retirement. These three real estate investment trusts (REITs) don’t receive much attention from the finance media, largely because their business models produce such reliable profits…
|Company (Symbol)||5-Year Total Return||Forward Dividend Yield|
|Omega Healthcare Investors (NYSE:OHI)||77%||6.3%|
|Physicians Realty Trust (NYSE:DOC)||68%||5.3%|
None of these healthcare-focused REITs is going to double your money overnight, but they’ve provided market-beating gains over the long run. Read on to find out why they’ll probably continue to outperform throughout your retirement years.
1. Omega Healthcare Investors: Nursing homes
The 85-and-over population is expected to more than double from 6.4 million in 2016 to 14.6 million in 2040, and many will end up in a nursing home leased from Omega Healthcare Investors. This REIT specializes in skilled nursing facilities and assisted-living facilities, and it leases 949 buildings to 75 different businesses that operate the facilities.
Omega Health Investors generally locks nursing home operators into long-term triple-net leases that heap all the variable costs of building ownership onto its renters. That gives the company steady cash flows that exceed its cost of capital by a mile.
In the second quarter, Omega Healthcare reported adjusted funds from operations (FFO) that reached an impressive $169.2 million, or $0.77 per share. Everyday REIT investors like to think of FFO as the maximum amount a company can distribute to its shareholders without spiraling into debt. At the moment, Omega Health shares offer a $0.66 quarterly dividend, which is just a few steps outside the danger zone.
Omega Healthcare shares offer a juicy 6.2% yield that hasn’t budged in over a year, thanks to the implosion of a large operator called Orianna Health that couldn’t pay its rent and filed for Chapter 11 bankruptcy protection in March 2018. Now that the Orianna debacle is in the rearview mirror, Omega’s predicting steady growth ahead.
2. Physicians Realty Trust: Riding a big trend
Aging baby boomers are increasingly likely to receive care outside pricey hospitals, and Physicians Realty Trust has positioned itself to ride this trend better than any other REIT you can buy right now. Demand for the outpatient treatment facilities, ambulatory surgery centers, and specialty treatment centers in its portfolio are on the rise, and they could start booming.
Physicians Realty Trust is the smallest and youngest REIT on this list, but you wouldn’t know it by looking at its carefully curated portfolio of medical office buildings. At the end of June, Physicians Realty owned 252 properties in 30 states, 96% of which are leased for the next 7.5 years on average.
Since its IPO in 2013, Physicians Realty Trust’s portfolio has grown from $124 million to $4.4 billion at the end of June. This REIT will be the most volatile stock on this list, but it could also turn out to be the best performer if the trend toward avoiding hospitals accelerates…
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