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3 Healthcare Stocks Perfect for Retirees

By Cory Renauer - Updated Oct 7, 2019 at 9:19AM

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These aren't the most exciting businesses in the sector, but you're going to love their steadily growing dividends.

Healthcare stocks are generally popular among people in retirement because they can usually outperform in any economy. Mounting fear of a global economic slowdown has made the sector even more popular than usual among retirement-age investors with little room for error.

Growth stocks based on groundbreaking new gene therapies, surgical robots, and new digital health start-ups get lots of attention, but they're not smart investments to make when you're in or near retirement. These three real estate investment trusts (REITs) don't receive much attention from the finance media, largely because their business models produce such reliable profits.

Company (Symbol) 5-Year Total Return Forward Dividend Yield
Omega Healthcare Investors (OHI -0.45%) 77% 6.3%
Physicians Realty Trust (DOC -1.00%) 68% 5.3%
Welltower (WELL -0.84%) 88% 3.8%

Data source: Yahoo! Finance.

None of these healthcare-focused REITs is going to double your money overnight, but they've provided market-beating gains over the long run. Read on to find out why they'll probably continue to outperform throughout your retirement years.

An older couple looks excitedly at a laptop screen.

Image source: Getty Images.

1. Omega Healthcare Investors: Nursing homes

The 85-and-over population is expected to more than double from 6.4 million in 2016 to 14.6 million in 2040, and many will end up in a nursing home leased from Omega Healthcare Investors. This REIT specializes in skilled nursing facilities and assisted-living facilities, and it leases 949 buildings to 75 different businesses that operate the facilities. 

Omega Health Investors generally locks nursing home operators into long-term triple-net leases that heap all the variable costs of building ownership onto its renters. That gives the company steady cash flows that exceed its cost of capital by a mile. 

In the second quarter, Omega Healthcare reported adjusted funds from operations (FFO) that reached an impressive $169.2 million, or $0.77 per share. Everyday REIT investors like to think of FFO as the maximum amount a company can distribute to its shareholders without spiraling into debt. At the moment, Omega Health shares offer a $0.66 quarterly dividend, which is just a few steps outside the danger zone.

Omega Healthcare shares offer a juicy 6.2% yield that hasn't budged in over a year, thanks to the implosion of a large operator called Orianna Health that couldn't pay its rent and filed for Chapter 11 bankruptcy protection in March 2018. Now that the Orianna debacle is in the rearview mirror, Omega's predicting steady growth ahead.

Piggy bank on stacks of banknotes.

Image source: Getty Images.

2. Physicians Realty Trust: Riding a big trend

Aging baby boomers are increasingly likely to receive care outside pricey hospitals, and Physicians Realty Trust has positioned itself to ride this trend better than any other REIT you can buy right now. Demand for the outpatient treatment facilities, ambulatory surgery centers, and specialty treatment centers in its portfolio are on the rise, and they could start booming. 

Physicians Realty Trust is the smallest and youngest REIT on this list, but you wouldn't know it by looking at its carefully curated portfolio of medical office buildings. At the end of June, Physicians Realty owned 252 properties in 30 states, 96% of which are leased for the next 7.5 years on average.

Since its IPO in 2013, Physicians Realty Trust's portfolio has grown from $124 million to $4.4 billion at the end of June. This REIT will be the most volatile stock on this list, but it could also turn out to be the best performer if the trend toward avoiding hospitals accelerates.

Retirees saving in a piggy bank.

Image source: Getty Images.

3. Welltower: Battle-tested

Retirees who need steady income streams have been flocking toward Welltower for decades, and younger investors would do well to reinvest its steadily rising dividend payout. A $10,000 investment in Welltower stock 20 years ago would be worth $177,900 today. 

Welltower's portfolio of seniors housing and outpatient medical buildings grew to a whopping $30.1 billion at the end of June. While Physicians Realty and Omega Health nearly always insist on triple-net leases, Welltower actually operates around a third of the properties in its portfolio.

Welltower draws 45% of net operating income from the 575 senior housing buildings it manages, and the rest comes from operators with triple-net leases paying rent and outpatient medical. This diversification is a big reason Welltower has outperformed the broad market for decades and will probably continue doing so throughout your retirement years.

Set it and forget it

If you're going to put one of these stocks in your retirement portfolio, just forgetting about it might be the best thing you can do. Companies that invest in real estate rarely grow in a perfectly straight line, and their stock prices can be even more erratic.

These stocks might provide market-beating returns over the next several years, but that's far from guaranteed. For patient investors, though, beating the market on a much longer timeline is about as close to a sure thing as you can get.

Cory Renauer owns shares of Omega Healthcare Investors. The Motley Fool owns shares of and recommends Physicians Realty Trust. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Omega Healthcare Investors, Inc. Stock Quote
Omega Healthcare Investors, Inc.
$33.13 (-0.45%) $0.15
Welltower Inc. Stock Quote
Welltower Inc.
$79.33 (-0.84%) $0.68
Physicians Realty Trust Stock Quote
Physicians Realty Trust
$17.77 (-1.00%) $0.18

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

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