Health Care REITs, an Attractive Pipeline for Dividends
Ventas is currently paying a 3.91% dividend yield and the company's annual dividend growth has been 10% over the past 10 years.
That dividend and dividend growth is an important component to Ventas's consistent superior total return to shareholders (year-to-date total return is 18.71%).
Healthcare Trust of America, based in Scottsdale, Ariz., is the "new kid on the block". In June HTA listed its shares on the New York Stock Exchange and the company's portfolio today consists of around 12.5 million square feet in 27 states. The market cap is $2.15 billion and the company boasts a dividend yield of 5.74 % -- almost three times the sector average.
HTA is focused almost exclusively on the medical office building sector. Within the health care sector, medical office is considered to have the lowest risk profile. It has the lowest exposure to government reimbursement. It also is driven by traditional real estate fundamentals and is not dependent upon the success or failures of a single operating company. Additionally, it allows HTA to concentrate all of its efforts on maintaining and building relationships with health systems and developers in this sector.
Health Care REITs: Attractive for Dividend Repeatability
REIT earnings suffered over the last few years as real estate operating fundamentals -- rent growth and occupancy levels -- declined dramatically. With the economy starting to recover, both rent growth and occupancies have started to improve, but REIT earnings are still low relative to a normal market environment.
Investors like REITs not just because they have strong current dividend yields relative to other income assets, but also because investors expect their operating earnings to grow strongly as the economy improves.
The health care REITs mentioned in this article offer unique operating platforms and the denominator is that they all should capitalize on the attractive tailwinds of low interest rates and the new certainty of the Affordable Care Act.
As a fixed-income alternative, REITs have become more mainstream today as the benefits for investing in these high-quality alternatives include high yields (average 15-year dividend yield is around 8%), simple tax treatment (REITs send form 1099-DIV to their shareholders, containing a breakdown of dividend distributions), liquidity (shares are bought and sold on a stock exchange), and diversification (adding REITs to a diversified investment portfolio increases returns and reduces risk since REITs have little correlation with the S&P 500).
At the time of publication the author held no positions in any of the stocks mentioned.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.