Portfolio of Healthcare REITs – Dividend Investing Journal

**Editor’s Note:  Dividend investing, done right, allows for the miracle of compounding to grow your savings.  The key, again, is done right.  This means finding stocks of solid businesses that can sustain and grow the dividends they pay you.  Often, it's smarter to let other successful traders and investors do the research for you, as long as they have a proven record of success and not simply discussing stocks as an analyst.

Here is the article by Frank Perry (Stockguy22).  Republished with permission from the April 7th, 2013 Issue of Stockguy22 Bull & Bear investors newsletter.


This week I wanted to share with you some insight into a sector that has done amazingly well the past year.

Health Care Reits have performed excellent, have had amazing charts and they pay great dividends.

The Investment Idea

I really like this Health Care REIT sector for a many reasons such as:

  • As you may know I own a nice portfolio of health stocks (longer term) that has performed well for me the past 11 years and benefitted nicely from this market strength we had so far this year.

  • I already have exposure to residential real estate so I feel its a good expansion to get into the commercial Health Care side of real estate investment without actually going out there and buying a Health Care Complex.

  • I had analyzed this sector with Jeff during our extensive Health Webinar but I never got any exposure to Health care REITS then but I wish I had. This is definitely one sector I would be interested in accumulating 4-7 positions of the 12 stocks I included below and would plan to hold them longer term once I do buy them.

  • I plan to wait for dips to scale in since I feel they are a bit too parabolic here.

  • As this sector continues to grow and if real estate prices increase it provides these companies with a lot of flexibility to do buyouts, mergers, expansion or additional private deals.

  • With the low interest rates,  if they lock in lower rates before they go up in 2014 can help position these companies well longer term for consistent healthy dividends.

  • As they merge or buy each other out , I predict we get some of the middle to top market cap stocks in this sector make a play for the smaller to mid capped stocks. I've seen it in other sectors and I think can happen here too over time.

  • They have triple net leases meaning that the renter pays heat, hydro, maintenance, insurance, property taxes etc. and they are usually longer term leases which is better and less risky than other non-Health Care REITS.

From our extensive Health Care webinar you may recall that by 2020 we will be near 80Mill people aged 60+ and through to 2040 when we will have over 100Mill  over 60+ in the US alone. Just explosive growth of the aging population.

So let's look at the charts in this sector : Just amazing parabolic moves. You can see below a few of the charts I've included but they are all similar patterns:

You can see in 2013 they all broke out and continued that run-up to new current highs.


Next let's look at performance on Health Care REITS:

A few notes: HTA only started trading June6th, 2012 so that's why you only see the YeartoDate (YTD) performance but has also done very well.

One stock not mentioned there which is a recent IPO is AViV, which has returned 8.7% a few weeks since March21st. You won't see that on the scan below but thought I would add it.


I worked out the average percentage on them for the past year and was 50.69% which is great and includes healthy dividends which as you can see below

Dividends on these 12 stocks have been very healthy and here is a list below : I included AViV which is approx 5.8% dividend

The average that I worked out  for the 12 stocks was 4.59% avg dividend.


Breaking It Down

Some disadvantages to holding these Health Care REITS are:

  • If interest rates increase past 2014 and continue up then could affect return as well as dividends.

  • Since REITS pay out 90% of income as dividend. Any lower income will affect return & stock performance.

  • If people stop going to nursing homes or families keep aging parents at home. With the explosion of the baby boomers I find it hard to believe that people would use this as a negative argument.  Some families will have no choice since round the clock care at home is too costly and for working families more difficult to accommodate.

  • Negative changes in government legislation for Health Care sector would affect them negatively since if Medicare payments are cut too much then nursing home operators may not be able to pay rents or ask for lower rents.

  • If real estate explodes up too quickly and since many of these triple net leases are longer term then this Health Care sector may under-perform other REITS or real estate but the dividend would stay nicely intact since tenants stay at current rents.

  • When markets dropped back in 2008-2009 some of these got hit for 50%+ drops in share price so another major market drop will affect these more so than regular health stocks. In the 1990's some REITS went bankrupt although some still paid their dividends.

  • Further drop from here in real estate prices will negatively affect these REITS - but over the next 10 years+ I think we will be much higher.

  • The disadvantage I see are the extended parabolic charts, other than that there are few serious negatives that I see in this sector. If I find any others I will pass them on in a future article.

  • if you are Canadian or a non-US resident then dividends may require a withholding tax imposed on dividends of 35% but check with your accountant to see current rates and check for your own country tax liability as well or how to claim back withholding taxes which you should do.

  • may not be good for shorter term swing trading as I feel they are better and safer longer term.

Some Key Advantages of Health Care REITS are:

  • benefit from aging baby boomers.
  • benefit from increase in real estate values.

  • nice exposure to the Health Care sector as landlords with little risk due to triple Net leases.

  • great for small investors to become a landlord without actually buying any property themselves.

  • as an investor its very easy to get in and out since just buying a selling a stock vs. actually holding any real estate.

  • steady dividend payments.

  • tax benefits but some are just treated as capital gains so check with your accountant.

  • merger and acquisitions should increase and help the sector

  • even with the problems that were expected with Obama Care these REITS have still performed very well.

  • Medical costs will far outpace inflation (as they have been for past 20 years).

  • Tenants in Health Care business more likely to pay rents vs. other more volatile sectors.

  • There will be an Increase need for more medical facilities, hospitals,senior homes and health clinics in next 10-20 years.

  • If you hold these longer term your cost basis with the dividend can reduce your actual cost on those shares dramatically and  more if you re-invest the dividends back into more shares each quarter. I often do this with many of my dividend plays to take advantage of that. Some many not offer that but check with your broker if you can do dividend reinvestments. If they don't you can always park the dividend and add it back in each year if you don't get back enough to buy enough shares.

What To Do

So what I'll be looking for in this sector is to focus in on 4-7 of the stocks and hopefully get a chance to buy them on dips , enjoy a nice dividend and possibly have some mergers/acquisitions which should help the entire sector while we wait on the aging baby boomers to help the industry grow even larger over the next 10-20yrs.

Below are the 12 Stocks in this sector based on Market Caps


The ones that interest me so far are : AVIV , VTR, OHI, MPW, HCP , HCN ( since higher volume movers of the 12).

One last one that I do like that is not on this list but is a Senior Housing Health Care REIT is SNH - it pays a 5.73% dividend and also had one of those parabolic charts and currently up 32%+ in the past year.

When I buy any of these stocks I will let you know in the chatroom and I will update you in this newsletter with new charts and notes but I wanted to share with you why I was interested in this sector on any major drops from here.

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