The health-care industry has been through a lot in the past couple of years, battling labor shortages and occupancy issues and all manner of stress caused by a devastating worldwide plague.
But real estate investors still have plenty of promising choices to consider as we all anticipate a recovery from the COVID-19 pandemic in a diverse sector that includes everything from individual nursing homes and urgent-care clinics to multihospital health-care systems.
Two real estate investment trusts (REITs) worth considering for a January buy are Ventas (VTR 0.87%) and Omega Healthcare Investors (OHI 1.21%). Here's why.
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Omega Healthcare Investors offers high yield while showing some recovery
Omega Healthcare Investors has posted a one-year total return (including dividends) of about 18% in the past year and ranks second among health-care REITs and 26th in total return among all REITs through 2020, as well as raising dividends annually since 2003.
But it's been a rocky road. The company has more than 940 skilled-nursing and assisted-living facilities in 42 U.S. states and the U.K. The pandemic hit both countries hard, and a few of its 63 operators have had trouble paying the rent, up to and including bankruptcy in one case, which hurt the company's stock. But the shares on the mend now, rising more than 10% in the past month.
Worth watching here is whether the stock price catches up with some other important REIT metrics: funds from operations (FFO) and earnings per share (EPS). While Omega stock has been recovering of late from a dip that saw it fall nearly 13% in the past year, FFO has risen about 40% over that same period and EPS an even more impressive 60%. That's based on a depressed stock price, of course, but revenue for the third quarter of 2021 was $281.7 million compared to $119.2 million in the year-ago quarter.
Omega also declared a fourth-quarter 2021 dividend of $0.67 a share, giving it a yield of nearly 9%. A rising stock price will reduce that yield percentage, of course, but the company has raised its dividend by about 1.5% over the past three years, not bad considering the hit it took during the pandemic.
While the numbers are getting better, there is probably more risk with this stock than with Ventas. The company said in its Q3 2021 earnings report that occupancy was still below pre-pandemic levels and that using security deposits, letters of credit, and other collateral helped defray losses from struggling tenants. But with a long history of solid payouts and a continuing commitment -- including $172 million in Q3 2021 real estate investments -- Omega has a growing portfolio in an essential industry that seems likely to snap back after the pandemic.
All in all, it looks like a solid candidate for stock price growth while not stretching too much into yield-trap territory, in which a big dividend masks a shaky underlying business. If you agree, now's the time to buy.
Ventas is a diversified play on the health-care industry
Ventas has posted a robust one-year return of about 62% and there's reason for optimism for more gains. While most health-care REITs focus on specific types of properties, Ventas is widely diversified, with a portfolio of 813 senior-housing communities, 313 medical-office buildings, 42 life-science centers, 37 inpatient-rehab and long-term, acute-care facilities, 16 skilled nursing centers, 10 health systems, and even three international hospitals.
This REIT's fortunes took a serious fall during the height of the coronavirus pandemic, with earnings per share and dividend payouts taking a calamitous dip of nearly 83% and 43%, respectively, and FFO dropping 4.67% from early 2019 until now. But push the start date of the dial ahead a bit, and in the past year, the dividend payout has been steady, FFO has risen by 18%, while EPS fell a smaller 37%.
That dividend, by the way, has been $0.45 per share for the past seven quarters, after being cut dramatically from $0.79 in March 2020 as COVID-19 shut down much of the economy. That's good for a yield of about 3.5% based on a stock price that's risen more than 12% in the past month to about $53.
In its most recent quarterly earnings report, Ventas Chief Executive Officer Debra Cafaro pointed to $3.7 billion in 2021 investments, including the purchase of a group of 103 independent-living communities and the $500 million development of a life-science project anchored by the University of California-Davis. Cafaro also noted eight straight months of increasing occupancy in its senior-housing communities, a major chunk of its holdings. There's reason to believe more good news is to come as the company's investments pay off.
REITs that have seen better days and should see them again soon
There are a number of interesting REITs in the health-care sector. Ventas and Omega Healthcare Investors are two that present intriguing arguments for a January buy that could pay off nicely before the next year dawns.
