There may be no harder demographic to pin down than baby boomers. Although baby boomers are aging -- some 10,000 turn 65 every day -- their lifestyles are far different from the lifestyles of seniors in decades past. As a result, companies are struggling to figure out how to target older, more active, and wealthier seniors, but not all industries are likely to benefit from the aging American trend equally.
We asked three Motley Fool contributors to tell us which investments they think could benefit the most from an aging America. Read on to learn what they suggest.
One of my favorite ideas for profiting from an aging population is investing in retail pharmacy chains Walgreen Boots Alliance (Nasdaq: WBA), CVS Health (NYSE:CVS), and Rite Aid(NYSE:RAD). All three operate thousands of stores across the country that sell to, and fill prescriptions for, millions of seniors every day. Combined, the three handle more than a third of all prescriptions filled in America every year. Importantly, each is launching new services and expanding into new markets to increase the revenue they can capture from baby boomers, including in-store healthcare clinics. Walgreen operates hundreds of in-store healthcare clinics already, CVS Health has plans to run more than 1,500 of them by 2017, and Rite Aid is getting in on the act now thanks to its acquisition of RediClinic last year.
When you think of how to capitalize on an aging America, it's logical to think of doctors, medicines, and other things associated with getting older (and sicker). Yet few think of the ever-growing need for healthcare space, which is a shame, as some have estimated that healthcare real estate is worth around $1 trillion. Thus I see opportunity for investors in healthcare real estate investment trusts. One that looks quite good to me is HCP (NYSE:HCP).
HCP owns, manages, develops, and leases more than 1,100 properties. It boasts a "5x5 investing strategy," featuring investments spread across five diversified healthcare segments (senior housing, medical offices, life science buildings, nursing homes, and hospitals) and five investment products (such as real estate, debt investments, and development). In senior housing, it recently had 477 properties in 43 states and the United Kingdom and $9.2 billion in investments. In medical offices, it had 277 properties in 32 states, with 91% occupancy and a 77% tenant retention rate. In life sciences, its 116 properties recently enjoyed an all-time high occupancy rate of 94%, with tenants including Amgen (NASDAQ:AMGN) and Google (NASDAQ:GOOG) (NASDAQ:GOOGL). In nursing homes, it had 301 properties with 38,300 beds across 31 states. (HCR Manor Care made up some 90% of its post-acute portfolio, which isn't ideal, as that's a lot of eggs in one basket.) In hospitals, HCP had 20 properties with 2,400 beds, spanning some 10 states. Overall, that's a lot of geographic and operational diversification.
Then there's the dividend. HCP recently yielded a solid 4.8%. (REITs are required to pay out at least 90% of their earnings in dividends.) The company has been growing its payout by an annual average of 3% over the past decade and raising it annually for about 30 years. That's impressive, as it suggests a well-run company that's not overreaching and occasionally coming up short. Indeed, over the past decade, HCP's revenue has grown by about 18% annually, while its earnings per share has doubled. HCP is a solid portfolio contender, especially if you're after dividend income.
Research has shown that vitamin and dietary-supplement use has been steadily growing the past 40 years. Further, research from the Council for Responsible Nutrition has shown that as people age, more take vitamins and supplements, with the percentage rising from 30% of young adults to roughly 50% of those 80 and over.
While facing some competition from the traditional pharmacies, Vitamin Shoppe and GNC capitalize on their associates' in-depth knowledge of vitamins and mineral supplements, which is no small feat for traditional sales associates at the national pharmacy chains.
GNC is the worldwide leader in vitamins and supplements. For a company with 8,800 stores worldwide -- 80% in the U.S. -- you pay only 14.5 times forward earnings. Vitamin Shoppe, on the other hand, has 659 stores, with 99% in the United States. But all of its stores are company-owned, and Vitamin Shoppe is expected to grow more quickly than its larger competitor, thus it trades at 17.1 times forward earnings.
While they differ in terms of price and growth profile, both are a great way to invest in the trend of aging America over the next 10 to 20 years.