If you are looking for growth at bargain prices, there's no better place to invest other than the healthcare sector, suggests Rida Morwa, editor of High Dividend Opportunities.
One way to take advantage of increasing healthcare demand is through real estate. Medical buildings have numerous requirements that make them sufficiently different from other property types that they are specially built.
Healthcare Trust of America (HTA) and Medical Properties Trust (MPW) invest in very different types of healthcare buildings, but both benefit from the increasing demand for healthcare. Both have significant growth potential in the near future and both have been raising their dividends annually.
For conservative investors who are looking for rock-solid income stability in any environment, and with income growth, these are two picks that fit the bill. These REITs directly benefit from the growing demand for medical services, which allows them to collect higher rents.
Healthcare Trust of America is yielding 4.5% and is the largest owner of medical office buildings or MOBs. These are buildings you might go to in order to have an outpatient procedure done or to see a specialist. This sub sector is a major winner from the sheer increase in the number of procedures that have become commonplace.
Medical Properties Trust, yielding 5.2%, has been buying up hospitals around the world. Primarily "general acute care" hospitals, these are the kinds of facilities you might go to if you needed emergency care from an accident or were experiencing symptoms of a stroke or heart attack.
These are facilities that we can all agree are essential to have access to in order to maintain the high standard of living we desire.
HTA proved the quality of their tenants in the midst of the COVID shutdown in 2020. When many REITs were seeing their rent collections drop as low as 50%, HTA continued collecting 98% of rent throughout the crisis.
Where many companies were cutting their dividend in 2020, HTA raised the dividend. This is thanks to tenants who did the one thing that landlords want – they paid their rent.
Like HTA, MPW's earnings also showed little impact from COVID-19. While the share price declined in March, MPW's cash flow kept coming in and the dividend is still being paid. MPW did not even slow down their expansion plans. MPW closed $3.6 billion in acquisitions in 2020, and is already off to the races for 2021 closing a $1.1 billion acquisition in January.
Going forward, the opportunities to expand are plentiful. Fueled by low interest rates and surging demand for healthcare services, there's no shortage of acquisition opportunities for these REITs. HTA is looking to triple 2020's acquisition pace, and MPW started the year with a $1.1 billion acquisition.
The best part is that the strong fundamentals fueling growth for these REITs is not temporary. Demand for healthcare services is going to increase from the dual impacts of an aging population and improved medical technology. This is a sector that's going to be a huge winner over the next decades to come.
With these REITs, we get current yield, plus dividend growth, and the confidence that this income is stable in any economic conditions. This is precisely the type of investment you want in a conservative income portfolio. You can buy and hold forever, letting the dividend growth fuel your income.