Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



2 Great Reasons To Buy HCP, Inc and Health Care REIT, Inc

Real estate investment trusts, or REITs, have their fair share of fans and critics.

On one hand, income investors favor these investments as important sources of high dividend yields. On the other hand, those bearish on REITs probably see a difficult future on the horizon in the form of higher interest rates.

Nowhere is this constant tug-of-war more evident than in the share price performance of many REITs over the past couple of years. There has been a high level of volatility in stock prices of REITs, which only adds another layer of confusion as to when, and if, to buy.

Here are two great reasons to consider buying these health-care focused REITs, HCP (NYSE: HCP  ) and Health Care REIT (NYSE: HCN  ) .

The unstoppable force of shifting demographics
Baby boomers, or those born roughly between 1946-1964, are the single largest generation in the United States. Baby boomers alone constitute about one-third of the U.S. adult population. There are millions of people entering retirement every year, and as the general population ages, this will place an enormous need on health care.

Aside from pharmaceutical companies themselves, HCP and Health Care REITs are great picks because they operate a slew of health-care related properties. HCP and Health Care REIT are both involved in acquiring and leasing health-care related properties, such as senior housing, medical facilities, and hospitals.

It goes without saying that the aging population in the United States will serve them well. Tens of millions of people are in or nearing retirement, and will require lots of health care services.

In addition, HCP and Health Care REIT hold diversified portfolios. Health Care REIT is diversified geographically across the United States, Canada, and the UK. Meanwhile, HCP has balanced assets. Its assets under management are spread across five categories. It derives 36% of its portfolio from senior housing, and another 28% from skilled nursing facilities, 17% from life science buildings, and 16% from medical office buildings.

What this means is that both HCP and Health Care REIT hold high-quality asset bases that provide solid cash flow and steady growth. The core financial metric for REITs is funds from operations, rather than traditional earnings per share. This is a non-GAAP equivalent that provides a clearer picture of REIT's underlying performance.

On this basis, it's clear that HCP and Health Care REIT are well-run businesses.

HCP grew funds from operations by 1% last quarter, due in part because the comparison period benefited from a one-time gain from sales of marketable securities. Excluding this, FFO grew a more satisfactory 4%. For its part, Health Care REIT posted 10% growth in funds from operations last quarter and produced a company record.

These growth rates allow for both companies to raise their dividends year in and year out.

High dividends and long track records of shareholder rewards
In today's environment of low interest rates and high stock prices, yield is hard to find.

The yield of the overall market, as measured by the S&P 500 Index, is only about 2%. Fixed-income investments won't do you much better. The yield of the 10-year U.S. Treasury Bond is just HCP happens to be the only REIT included in the S&P 500 Dividend Aristocrats index, and recently raised its dividend for the 29th year in a row.

Likewise, Health Care REIT recently paid its 171st consecutive quarterly dividend, and earlier this year raised its payout by 4%.

Both HCP and Health Care REIT offer very strong yields in this low-yield climate. HCP yields 5.2%, and Health Care REIT pays approximately 5%. These two companies can provide valuable income for those seeking dependable payouts, and both increase their dividends above the rate of inflation every year. That means your purchasing power will be protected even if inflation hits, instead of eroding as it would with fixed-income securities.

The Foolish bottom line
In today's environment of record-high stock prices and historically low interest rates, income investors are in a bind. While yield might seem hard to find, one sector income investors should be considering is REITs.

In particular, HCP and Health Care REIT are two specific ones that you should consider because they're about to reap huge rewards from the long-term demographics of the United States. Millions of Americans are entering retirement with each passing year. The aging population will require lots of health care, and that's great news for HCP and Health Care REIT.

Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That’s beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor’s portfolio. To see our free report on these stocks, just click here now.

Read/Post Comments (1) | Recommend This Article (10)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 01, 2014, at 6:19 PM, ALLWIN wrote:

    Bob, what about an article or short series of articles comparing the best of class / breed re: HCN, VTR and HCP for potential investors?

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3030170, ~/Articles/ArticleHandler.aspx, 9/3/2015 5:42:46 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Bob Ciura

Bob Ciura, MBA, has written for The Motley Fool since 2012. I focus on energy, consumer goods, and technology. I look for growth at a reasonable price, with a particular fondness for market-beating dividend yields.

Today's Market

updated Moments ago Sponsored by:
DOW 16,374.76 23.38 0.14%
S&P 500 1,951.13 2.27 0.12%
NASD 4,733.50 -16.48 -0.35%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/3/2015 4:05 PM
HCN $62.86 Down -0.36 -0.57%
Health Care REIT CAPS Rating: *****
HCP $36.58 Down -0.15 -0.41%
Health Care Proper… CAPS Rating: *****