5 Health Care REITs for Your Portfolio
By: Ned Piplovic,
Due to their design as pass-through equities, real estate investment trusts (REITs) generally deliver dividend yields that are above the market average. Furthermore, health care REITs offer the additional benefit of offering exposure to the expanding demand for health and long-term care facilities that is being driven by an aging population.
Current forecasts estimate that health care spending could increase to approximately one-fifth of gross domestic product (GDP) in the United States by 2024. Furthermore, the current coronavirus outbreak might have exposed some shortcomings in our current supply of medical facilities. This revelation might drive demand even higher in an effort to increase our readiness for any potential outbreaks in the future.
Also, health care REITs must dispense most of their earnings in the form of dividend distributions in order to maintain their tax-favorable status and carry zero corporate tax liability. Therefore, these equities offer reliable income flows for investors at above-average yields. Listed in ascending order by the respective dividend yield, below are five high-yield health care REITs that investors should consider adding to their portfolio to obtain a steady dividend income and overall long-term returns.
5 Health Care REITs for your Portfolio: #5
Medical Properties Trust, Inc. (NYSE:MPW)
Based in Birmingham, Alabama, and founded in 2003, Medical Properties Trust, Inc. focuses exclusively on providing capital to acute health and medical care facilities through long-term leases of multiple facility types.
This REIT increased the quarterly dividend payout for its upcoming pay date in early April from $0.26 in the previous period to $0.27. This new quarterly distribution is equivalent to a $1.08 annualized dividend and yields 4.6%. While still above the industry average, the current yield is driven by robust asset appreciation below the REIT’s own five-year average of 6.36%.
While trailing its own average, Medical Properties Trust’s current yield is still nearly 5% higher than the 2.82% yield average of the entire Financial sector, as well as 2% above the 4.53% average yield of the Health Care Facilities REITs industry segment.
Since resuming annual dividend hikes in 2014, the trust has enhanced its annual dividend payout amount by 35%, which is equivalent to an average annual growth rate of 4.4% over the past seven years. This combination of asset appreciation and rising dividends has delivered a total return of more than 33% over the past year. A share price decline of more than 30% in 2015 limited the five-year total return to less than 90%. However, the share price has been rising steadily since 2006 and shareholders have more than doubled their investment with a total return of more than 106% over the three years.
5 Health Care REITs for your Portfolio: #4
LTC Properties, Inc. (NYSE:LTC)
Headquartered in Westlake Village, California, and founded in 1992, LTC Properties, Inc. operates as a health care REIT. The company invests in senior housing and long-term health care properties, including skilled nursing properties, assisted living properties and independent living properties through mortgage loans, property lease transactions and other investments.
Unlike many other equities that slashed their dividends drastically in the aftermath of the 2008 financial crisis, LTC merely paid a flat annual dividend in 2009 and resumed its annual dividend hikes the following year. Since suspending dividend payouts in 2001, LTC has advanced its annual payout by 470%. This corresponds to an average dividend growth rate of more than 10% per year.
The current $0.18 monthly dividend payout amount is equivalent to a $2.28 annualized distribution. At the current price of the stock in the mid-$48 range, this annual dividend distribution corresponds to a 4.67% forward dividend yield.
LTC Properties’ share price recovered most of its nearly 20% drop in late 2019 and combined with dividend income payouts for an overall total return of nearly 17%. While the late 2019 share price pullback limited the three-year total return to just slightly more than 17%, the total return over the last five years was almost 38%.
5 Health Care REITs for your Portfolio: #3
National Health Investors, Inc. (NYSE:NHI)
National Health Investors specializes in sale-leaseback, joint-venture, mortgage and mezzanine financing for senior care communities, entrance-fee retirement communities, skilled nursing facilities, medical office buildings and specialty hospitals.
This REIT boosted its quarterly payout by 5% from $1.05 in the previous period to $1.103 for the upcoming distribution in early May 2020. This current quarterly payout corresponds to a $4.41 annualized distribution and currently yields 5.04%, which is only slightly lower than the REIT’s own 5.17% yield average over the last five years.
Furthermore, the current 5.04% yield is almost 15% above the Financial sector’s 4.4% current average yield. Additionally, the REIT’s current yield also outperformed the 4.53% average of the company’s peers in the Health Care Facilities REITs industry segment by more than 11%.
After paying no dividends for one year in 2001, the REIT resumed dividend distributions in 2002. Over the past 17 years, the company has nearly tripled its annual dividend payout amount. That advancement pace corresponds to an average growth rate of 6.2% per year.
This REIT combined its share price growth and dividend distributions to produce a total return of nearly 19% over the trailing year. The three-year return was 35% and the total return was nearly 53% over the last five years.
5 Health Care REITs for your Portfolio: #2
Global Medical REIT, Inc. (NYSE:GMRE)
Global Medical REIT Inc. engages primarily in the acquisition of licensed, purpose-built health care facilities and the leasing of these facilities to clinical operators. As required by its REIT status, Global Medical REIT, Inc. began dividend distributions upon its formation in late 2014. The REIT initially made its distributions monthly before switching to a quarterly distribution schedule in the second quarter of 2016.
The current quarterly payout of $0.20 is the same amount that the REIT has distributed over the past three years. This quarterly payout amount corresponds to an annualized distribution of $0.80 and currently yields 5.56%. This current yield level is more than 26% above the 4.4% simple average yield of the overall Financial sector.
Additionally, Global Medical’s current yield is also nearly 23% higher than the 4.53% yield average of the company’s peers in the Health Care Facilities REIT industry subsegment. Furthermore, even within the segment, GMRE’s current 5.56% yield is also 9% higher than the 5.1% average yield of the segment’s only dividend-paying companies.
In addition to having a high dividend yield, this REIT delivered robust asset appreciation, which have combined to produce a 53% total return over the last 12 months. Over the past three years, shareholders have nearly doubled their investment with a total return of 98.5%.
5 Health Care REITs for your Portfolio: #1
Omega Healthcare Investors, Inc. (NYSE:OHI)
Omega Healthcare Investors finances the sale, leaseback, construction and renovation of long-term health care facilities in the United States and the United Kingdom. Established in 1992, the company was one of the first publicly traded REITs that was explicitly structured to finance the sale, leaseback, construction and renovation of nursing and assisted living facilities. While OHI owns and leases more than 900 buildings, 69 third party operators manage the day-to-day operations at these facilities.
Omega Healthcare’s current $0.67 quarterly payout converts to a $2.68 annualized distribution amount and a 6.4% forward dividend yield. Despite rising dividend distributions, a rapidly rising share price pushed the current yield approximately 14% below the company’s own 75% average yield over the past five years.
However, while trailing its own five-year yield average, Omega’s current yield is nearly 50% higher than the 4.4% simple average yield of the overall Financial sector, as well as more than 40% above the 4.53% average yield of the equities in the Healthcare Facilities Industry segment. Furthermore, this REIT’s current yield also outperformed the 5.1% average yield of the segment’s only dividend-paying companies by almost 25%.
Over the past 17 years of consecutive annual dividend hikes, Omega Healthcare has enhanced its annual distribution by nearly 350%, which is equivalent to an average annual growth rate of more than 9%. A steady share price decline between 2015 and 2018, as well as a recent pullback amid market volatility kept the five-year total return below 35%. However, the total return over the past three years was more than 51%. OHI’s one-year total return exceeds 24%.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.