REITs are viewed as bond surrogates. The value of bonds and similar income investments frequently de...
Ventas: High Yield in Healthcare
11/25/2016 10:00 am EST
The recent weakness in REITs has presented a new buying opportunity, asserts growth and income expert Todd Shaver, editor of the Bull Market Report.
We’re adding Ventas (VTR) to our high yield portfolio. This is a strong-performing company with a long history and a high yield, making it a good option for income-hungry investors.
We see a number of compelling reasons to jump in, including the company’s size, its lower expense growth, its recent renegotiations with tenants, and diversification into new high-yielding properties.
Ventas is a healthcare REIT with around 1,300 properties in the United States, Canada, and the United Kingdom.
With an aging population in each of these countries, the company is well positioned to benefit from higher demand for its primary properties: senior housing and healthcare facilities.
In addition to housing and hospital properties, Ventas has recently invested in healthcare research facilities as an additional source of income.
This is a particularly interesting strategy, as it differentiates Ventas and provides it with a larger base of tenants that can protect it from volatility while keeping occupancy rates high.
Over the last year, FFO of $4.15 was 42% higher than the current annualized dividend payout. Its price-to-FFO ratio is a bit below 15, its lowest price in months and far below many comparable REITs.
The dividend — now yielding 4.8% — has remained flat for over a year, indicating a rate hike is far overdue.
The firm also did not cut dividends during the darkest days of 2008-2009, indicating the company’s cash flow can withstand the most severe economic climates.
With strong fundamentals, a recent downturn in the stock and a long history of strong payouts and impressive asset management, Ventas is an undervalued REIT that provides a sustainable high and growing income stream.
While there is a small and shrinking risk of short-term weakness, we see this as a long-term buy-and-hold opportunity that investors should consider for income and capital gains potential.
By Todd Shaver, Editor of the Bull Market Report
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