HCP: Healthcare Aristocrat

04/29/2015 8:00 am EST

Focus: REITS

Jimmy Mengel

Editor, Outsider Club

My latest recommendation—a real estate investment trust—has a couple unique advantages that make it a perfect candidate for a long-term investment, asserts Jimmy Mengel, editor of The Crow's Nest.

REITs, if you are unfamiliar with them, utilize a unique structure with massive tax advantages. The idea is to give all investors the opportunity to invest in large-scale, diversified portfolios of income-producing real estate—not just the extremely wealthy.

To qualify as a REIT, a company must pay at least 90% of its taxable income in the form of shareholder dividends each year.

HCP, Inc. (HCP) focuses on real estate for the domestic healthcare industry. The company’s portfolio of assets is diversified among senior housing, post-acute/skilled nursing, life science, medical offices, and hospitals.

HCP raised its quarterly cash dividend to $0.565 per share or $2.26 annually, which works out to a yield of around 5.4%; pretty generous.

That is a 3.7% increase over the previous dividend and represented the 30th year in a row that the company’s increased its dividend; this record makes HCP the only REIT to earn the S&P dividend aristocrat tag.

The stock should continue to climb, along with its dividend payouts, as HCP continues to expand; HCP has recently acquired NHP, a company that owned 273 nursing and residential care homes representing over 12,500 beds in the UK.

HCP is also breaking ground on its massive life science development center, dubbed The Cove at Oyster Point in San Francisco. With 20 Bay Area life sciences companies having gone public in just the past 13 months, The Cove should have plenty of people to rent to with little risk of vacancy.

HCP has a great track record, having recently achieved an all-time high occupancy of 95.2% in its life science segment. We’re buying HCP as a long-term position under $48.

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