Medical Properties Trust (MPW -8.68%), Physicians Realty Trust (DOC), and Omega Healthcare Systems (OHI 1.47%) all benefit from our aging population and the ever-growing need for healthcare. The three real estate investment trusts (REITs) have all shown great total returns over the past five years, and they have dividend yields of 4% or more -- perfect for retirees who need consistent income.
Even after last year, with the COVID-19 pandemic cutting into traffic (especially for lucrative elective surgical procedures), these three companies continue to thrive. That's thanks to the growing need for medical facilities, but also to their conservative management teams, which have managed to preserve their dividends without sacrificing their safety.
REITs are required to disburse 90% of their taxable income to shareholders via dividends to avoid taxes, but all three stocks had adjusted funds from operations (AFFO, a measure of earnings for REITs) payout ratios of 85% or less, well within what's considered a "safe" range for a REIT.
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Physicians Realty Trust is a steady earner
Physicians Realty Trust's shares are up more than 6% this year, and over the past five years its total return has grown by 13.38%. The company, which specializes in medical office buildings, has issued a quarterly dividend for eight consecutive years. It currently stands at $0.23 per share, which works out to a yield of 4.88% (the S&P 500's current average is about 1.3%).
What makes Physicians Realty a great retirement stock is the safety of that yield, which stems from the REIT's quality portfolio of long-term leases that deliver consistent funds from operations (FFO). In its June investor report, the company said it had $5 billion in real estate, 96% of which was leased, with an average weighted lease remaining of 6.6 years.
Management sees a bright future in off-campus healthcare facilities, which are generally more profitable than those at traditional hospitals because they get better reimbursement from insurers and face fewer government regulations. That means tenants are more able to pay the rent. Over the past five years, Physicians Realty has seen FFO grow by 115.7%. While the company carries an AFFO payout ratio of 77%, it's perfectly safe considering the company's growing FFO.
In the first-quarter report, revenue was a reported $133.3 million, up 5.5% year over year; net income was listed as $17.8 million, up 16.6% over the same period in 2020; and most importantly for a REIT, FFO was $0.27 per share, up 3.8% year over year.
Omega Healthcare is off to a great start in 2021
Omega Healthcare focuses on skilled nursing (78% of its portfolio) and senior housing facilities (the remaining 22%). Despite challenges from COVID-19, the company said it collected more than 99% of its rents from its facilities in the first quarter. The company's shares have been fairly flat this year at a 0.91% return, but over the past five years the stock has delivered a total return of 54.48%.
Skilled nursing facilities have a dual purpose these days, handling long-term care for those with acute medical needs (including Alzheimer's patients) as well as short-term rehabilitation for post-acute care patients who require physical therapy following operations.
As previously mentioned, the growth in the U.S. population of those 65 and older means more skilled nursing facilities will likely be needed. One study, by Industry ARC, put the market size of skilled nursing facility care at $298.2 billion in 2020, growing to $520.5 billion by the end of 2026, with a compound annual growth rate (CAGR) of 9.8% over that period.
Omega has raised its quarterly dividend for 17 consecutive years (though not yet this year), and it is currently $0.67 per share, which works out to a yield of 7.28%.
In the first quarter, the company reported $234.8 million in revenue, up 7.6%. Net income was listed at $164.3 million, a rise of 78%, but that was mainly because of a $98.5 million increase in gain on the sale of assets. The company also saw its AFFO grow 9% to $203.7 million, compared to $186.2 million in the same period in 2020.
Since 2009, the company's AFFO has grown with a CAGR of 18%, keeping its AFFO payout ratio at 82.4% (as of 2020).
Medical Properties Trust keeps rolling
Medical Properties Trust is the largest of the three REITs listed, with 446 properties that include beds for 47,000 patients. So far this year, its shares are down 2.94%, but over the past five years it's provided a total return of 83.86%.
The company has raised its quarterly dividend for eight consecutive years, including a 37% bump this year to $0.28 per share, which equals a yield of 5.29% at its current price.
Last year, it was more affected by the pandemic than the other two REITs because 72.4% of its facilities are acute-care hospitals. In the second quarter, the company reported revenue of $381.8 million, up 30.8% year over year, with net income of $115 million, up 5.5% compared to the same quarter a year ago. Its AFFO grew 27.5% year over year to $200.3 million.
It does have the highest AFFO payout ratio of the three REITS at 84.62%, but it also has grown its FFO by 152.5% over the past five years and showed a total return over the past five years of 84.30%.
Finding the bargain of the three
All three dividend stocks are solid long-term investments. While Physicians Realty is the smallest of the three REITs and has the lowest yield on its dividend, it is also the most attractively priced, with a share-price-to-FFO ratio of 1.035. I also like its strong FFO growth and the fact it has the lowest AFFO payout ratio of the three. While the stock is up 11% so far this year, there's obviously plenty of room to grow there. I also like Omega Healthcare over Medical Properties Trust because of Omega's higher dividend and longer history of increasing its dividend.
