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CareTrust: Healthcare Housing

12/26/2018 5:00 am EST

Focus: REITS

Mark Skousen

Editor, Forecasts & Strategies, High-Income Alert

If the market is deep in correction territory and a company’s share price is still near the high, that almost certainly means the stock would have been even higher without the poor market tone — and is likely to be a big gainer when the market does rebound, suggests Mark Skousen, dividend and growth expert and editor of High-Income Alert.

With that in mind, let’s take a closer look at CareTrust REIT (CTRE). Every day, 10,000 Baby Boomers become Medicare-eligible. But they’re not the leading edge of this demographic. The oldest Boomers were born in 1946. That means they turned 72 this year.

These folks — and their parents — are the most affluent men and women in the country. And as their health inevitably declines, many will need assisted living facilities.

If you’ve shopped for nursing homes — either for yourself or family members — you quickly learned two things. Great properties are hard to find. And when you do find them, they are either fully occupied, expensive… or both.

Some companies are making an awful lot of money filling a vital social and medical need. Based in San Clemente, California, CareTrust is a real estate investment (REIT) that acquires and leases health care and housing properties across the nation.

It currently has 194 properties -- with more than 19,000 beds -- in 24 states. Its portfolio is comprised of 70% Skilled Nursing Facilities (SNF), 22% Assisted Living Facilities (ILF) and 8% campuses that contain both.

CareTrust is led by experienced management with more than 55 years of collective experience both as small operators and as one of the country’s most successful publicly traded operators.

Despite market fluctuations, investing in health care real estate, particularly in the rapidly growing senior sector continues to produce generous returns.

The numbers at CareTrust are superb. Earnings are growing 28% year over year on a 20% increase in revenue. The trust enjoys a whopping 46% operating margin. And I estimate that net income will rise from $0.73 a share this year to more than a dollar a share in 2019.

No wonder the stock still trades within pennies of its 52-week high. (And CareTrust has generated a double-digit-percentage total return over the last year, while the broad market is essentially flat.)

CareTrust shares yield 4%, paid quarterly. And if you buy the stock now, you will qualify for this year’s final dividend of $0.16 a share. So, pick up CareTrust REIT at market. And place a sell stop at $16 for protection.

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