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3 Stocks to Help You Build Retirement Wealth

By Cory Renauer - Updated May 23, 2018 at 4:14PM

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All three of these dividend-paying stocks offer 6% or more at recent prices.

Retirement investing doesn't need to be difficult, because taking advantage of steadily compounding gains over time requires practically zero effort. For investors trying to build up their nest egg the easy way, shares of steadily profitable businesses that pay dividends are ideal tools.

Reinvesting dividends from quality stocks takes just a few clicks, but selecting businesses poised to produce steady profits shouldn't be taken lightly. These three healthcare-related real-estate investment trusts (REITs) fit the bill in large part because baby boomers are beginning to pour into the buildings they own.

Real-Estate Investment Trust Dividend Yield Trailing Funds From Operations Per Share Annualized Dividend Payout
Omega Healthcare Investors Inc. (OHI -0.48%) 9.2% $1.80 $2.64
Physicians Realty Trust (DOC -0.29%) 6.3% $1.03 $0.92
Welltower Inc. (WELL 0.37%) 6.3% $3.30 $3.48

Data source: YCharts.

Omega Healthcare Investors: Impact absorbed?

The Affordable Care Act shifted a lot of financial risk from insurers, and the government, to healthcare providers themselves. I like investments such as Omega because they don't need to see individual operators of their facilities thrive; they just need to do well enough to pay the rent. Unfortunately, healthcare reforms caught some over-leveraged facility operators off-guard. That includes one of the largest skilled nursing facility operators in Omega's portfolio, Orianna Health Systems, which fell into arrears last year.

Omega Healthcare Investors recorded a hefty non-cash charge while some Orianna facilities are being transferred to new operators. The charge dragged funds from operations (FFO) down to a level that makes the dividend payment appear unsustainable. If Omega meets full-year expectations, though, making dividend payments that offer a juicy 9.2% yield at recent prices shouldn't be too much of a stretch. Management expects adjusted FFO to come in between $2.96 and $3.06 per share for 2018, and that's assuming Orianna doesn't send in another rent check for the rest of the year. Its dividend payout is currently frozen at an annualized $2.64 per share.

Omega collects rent from around 70 individual operators, and investors will want to keep an eye out for signs of trouble from any more of them. If the worst has already passed, though, a return to payout raises from present levels could supercharge your retirement portfolio.

Satisfied person looking at a growing stack of coins.

Image source: Getty Images.

Physicians Realty Trust: Something Foolish

This healthcare REIT is betting an aging society will continue driving demand for medical office space, which it currently owns a great deal of. Since its IPO in 2013, the company has rapidly expanded its portfolio to around 14 million square feet.

Medical office spaces located on medical campuses, or otherwise affiliated with healthcare systems, tend to generate reliable cash flows. Around 85% of the REIT's portfolio fits this description, which could explain why an impressive 96.6% of it is currently leased at an average term of 8.2 years. 

Cash flows from these tenants' rent payments are especially predictable because Physicians Realty Trust isn't even responsible for most costs associated with operating the buildings in 92% of its portfolio, and leases on another 6% of its buildings are structured to shift responsibility for property taxes, maintenance, and other expenses over to tenants with time.

Right now, shares of this REIT offer a tempting 6.3% yield that's on some relatively solid ground. Funds from operations have steadily risen since the company's IPO, and $1.03 per share generated over the past year is enough to cover an annualized $0.92 per share payout; just don't expect any huge raises soon.

Welltower Inc.: Room to keep growing

It's been 47 years since this healthcare REIT missed a quarterly dividend payment, and rising demand for senior housing could make the next several decades especially memorable for investors. Demand for senior housing has been growing by around 25,000 units per year. According to Welltower, baby boomers are expected to boost this rate to 92,000 annually by 2025.

Welltower is America's largest owner of senior housing facilities, and the fourth largest publicly traded real estate company by enterprise value, with 28% of its portfolio made up of outpatient medical and long-term care facilities. If you're worried this REIT might run out of room to grow, consider the fact that just 11% of U.S. healthcare-related real estate is owned by publicly traded companies. A majority is still owned by the health systems and physicians that use them, which gives this deep-pocketed player plenty of potential buyout targets.

Welltower shares offer a healthy 6.3% yield at recent prices, and modest increases in the years ahead seem entirely possible. The annualized dividend at its present level will eat up 87% of funds from operations in 2018 if results meet the midpoint of management's guided range.

Grey haired couple looking at things.

Image source: Getty Images.

Final thoughts

Baby boomers are going to double the 80-and-older population over the next 10 years, and this age group spends more than four times the national average on healthcare. That's a mighty powerful trend in the right direction for all three of these REITs. 

Some investors have been avoiding REITs because interest rates have moved in the wrong direction for income-generating assets in general. Although further rate rises could pressure stock prices in the years ahead, they have a relatively small effect on the underlying operations of well-run REITs over the long run. Just look at Welltower, which generated annualized returns of 15.2% over the past 47 years despite long periods of high interest rates. There are no guarantees that these three stocks will perform as well for your retirement portfolio, but they sure seem to have what it takes.

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Stocks Mentioned

Omega Healthcare Investors, Inc. Stock Quote
Omega Healthcare Investors, Inc.
$29.01 (-0.48%) $0.14
Welltower Inc. Stock Quote
Welltower Inc.
$83.19 (0.37%) $0.31
Physicians Realty Trust Stock Quote
Physicians Realty Trust
$17.45 (-0.29%) $0.05

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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