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Income investors search mightily for yield, as CDs, money markets and Treasuries pay a paltry amount. What if there was a group of high-yield, relatively safe stocks that many investors have largely overlooked?
Well, there is.
REITs are real estate investment trusts, which bundle together a series of properties, usually office buildings, shopping centers or apartments. REITs must pass through 90% of their income to investors in the form of distributions, which are similar to dividends. REITs trade just like stocks, though many investors hold REITs for income.
The problem is, many of these REITs have been bid up in price and currently yield just 2% or 3%. That’s a decent dividend. But investors can do better.
Healthcare is a booming business in the U.S. due to aging demographics and the increased demand for services, and you can invest in that income stream right now. Some healthcare stocks have chosen to do business as REITs, which puts them conveniently in position to pass along their profits to you.
Here are three high-yield healthcare REITs I particularly like:
Healthcare REIT No. 1: Ventas (NYSE: VTR)
Ventas is in the business of investing in healthcare properties and currently yields 4.2%. Its properties include medical office buildings, senior housing facilities, skilled nursing facilities and hospitals. Though few investors have ever heard of Ventas, it is a substantial business with a $20 billion market cap.
The recent quarter saw Ventas increase its funds from operation, or FFO, to $1.12 per share. FFO is an important REIT metric because it adds back non-cash expenses to earnings, and is thus considered a truer measure of performance. Ventas also increased its FFO guidance for the full year 2014.
How did the market respond? It sent Ventas shares up to a new 52-week high, now $70.25.
That kind of performance is nothing new for Ventas. The stock’s 10-year total return is an astounding 320%.
So Ventas is much more than a dividend or income play. Investors can buy it for growth as well. With a business model that hits the sweet spot of serving an aging population, Ventas has a bright future, too.
You’ll want to buy Ventas shares on any price pullbacks.
Healtcare REIT No. 2: Medical Properties Trust (NYSE: MPW)
Medical Properties Trust invests in acute care facilities and medical office buildings. This healthcare REIT has a current yield of 6.3%.
In its third-quarter earnings report, the trust had FFO of $46.7 million, or 27 cents a share, both of which were an 8% increase over last year’s same quarter. As CEO Edward Aldag, Jr. pointed out, the trust has grown its assets at a compound rate of 33% in the last three years. Third-quarter revenue growth was 34% year-over-year.
Medical Properties Trust shares sold off in the summer amid some concerns over the lack of earnings increases – concerns that have since been met. The trust also continues to invest in its properties as well as further acquisitions. It spent $900 million last quarter to purchase 40 Median Kliniken facilities, a medical clinic company in Germany.
The trust is selling at an attractive share price of $13.77.
Healthcare REIT No. 3: HCP (NYSE: HCP)
HCP is a REIT that currently yields an even 5%. It invests in senior housing, medical offices, skilled nursing and hospital facilities. It also provides mortgage lending and financing in the healthcare industry.
For its recent quarter, HCP reported FFO of 75 cents compared to 79 cents in last year’s same quarter, due to higher expenses. Revenue, however, rose 9.2% to $596 million.
The third quarter saw HCP invest $834 million in acquisitions, $588 of it related to a major purchase of a stake in continuing care facilities.
HCP is set to grow, and the market has responded by pushing its stock near year highs.
Like Ventas, investors should ideally look to pick up HCP at a slightly lower stock price.
With these three high-yield healthcare REITs, investors can enjoy solid growth along with tantalizing yields.
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