Ask any baby boomer or recent retiree what their chief concern is when it comes to finally retiring and odds are they'll say healthcare. According to, healthcare expenditures in the United States exceeded $2.3 trillion in 2008, three times more than the $714 billion spent in 1990, and over eight times the $253 billion spent in 1980. This equates to just under $8000 per resident. Facing rising healthcare costs is scary proposition. These expenses have been rising significantly faster than the overall economy or personal incomes for more than 40 years. Over the longer term, broad healthcare investments such as the Health Care Select Sector SPDR (NYSE:XLV) should continue to do well. However, there is another way to play healthcare. One that leads to big dividends.

IN PICTURES: 5 Investing Statements That Make You Sound Stupid

Owning Your Doctor's Office
Individuals 75 years or older spend nearly 300% more on healthcare related costs than the population average. As America's population continues to live longer, they will require more medical services. More medical service equals more medical real estate. Newer hospitals and doctor's offices for practicing medicine as well as assisted living centers for aging retirees will need to be owned and operated. Opportunities exist for investors to participate in these facilities. There are a number of Real Estate Investment Trust's (REIT) designed to take advantage of this long term macroeconomic trend.

While some analysts continue to debate about the strength of commercial real estate, the medical sub-sector does have some things going for it. Recent data released by the National Investment Center for the Seniors Housing & Care Industry showed that occupancy rates for assisted living properties in the second quarter of 2010, was 88.3%. This was an increase from 87.8% in the first quarter. The group also found that 15 out of 31 major metropolitan regions recorded annual occupancy increases in throughout the quarter.

In addition, Standard & Poor's is quite bullish on the healthcare REIT sector over the next 12 months. Citing the group's huge cash flows and high rents to help buoy the financials, as well as insulate against shocks to commercial real estate. Finally, all those hospitals, assisted living centers and labs add up to big dividends for investors. The average dividend yield for healthcare REITs are at 5.2% - more than a full percentage point higher than their office twins.

Co-Pay Dividends
While retail focused REITs get their own exchange traded fund in the iShares FTSE NAREIT Retail (NYSE:RTL), healthcare REIT investors aren't so lucky. However, there are plenty to choose from and many offer big dividends and long term capital gains.

As one of the largest healthcare REITs, Ventas (NYSE:VTR) is a prime example of the current state of commercial real estate - those with cash are a making acquisitions. Recently, the company agreed to acquire the minority interests in 58 senior living communities from struggling Sunrise Senior Living (NYSE:SRZ) for $186 million. The company expects the deal to add nearly 10 cents to 2011's funds from operations (FFO). Shares of Ventas currently yield a healthy 4%.

Offering investors the highest dividend in the sector, Medical Properties Trust (NYSE:MPW) yields nearly 8%. The company follows a slightly different business model than traditional REITs by providing capital to facilities of through long-term triple-net leases. The company has reasonable debt levels and shows signs of strong revenue growth.

Focusing on senior living facilities including nursing homes, senior apartments and independent living communities, Senior Housing Properties Trust (NYSE:SNH) will benefit as more baby boomers give up their homes to live in such arrangements. The company is seeing some of that growth now and has been passing it on to shareholders. Senior Housing Properties recently raised its dividend by a penny and now yields about 6%.

Finally, REITs like HCP (NYSE:HCP), Health Care REIT (NYSE:HCN) and National Health Investors (NYSE:NHI) all offer 5% plus dividends, while owning a variety of property types.

Bottom Line
Healthcare costs will continue to be a major factor for future as our population ages and lives longer. Healthcare related real estate will also see its star rise. Stocks like Omega Healthcare (NYSE:OHI) offer big dividends and the stability of this macroeconomic trend. Investors looking for income should consider this sector. (For related reading, take a look at Investing In The Healthcare Sector.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Investing

    Time to Bring Active Back into a Portfolio?

    While stocks have rallied since the economic recovery in 2009, many active portfolio managers have struggled to deliver investor returns in excess.
  2. Chart Advisor

    Now Could Be The Time To Buy IPOs

    There has been lots of hype around the IPO market lately. We'll take a look at whether now is the time to buy.
  3. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  4. Chart Advisor

    Copper Continues Its Descent

    Copper prices have been under pressure lately and based on these charts it doesn't seem that it will reverse any time soon.
  5. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  6. Mutual Funds & ETFs

    Buying Vanguard Mutual Funds Vs. ETFs

    Learn about the differences between Vanguard's mutual fund and ETF products, and discover which may be more appropriate for investors.
  7. Mutual Funds & ETFs

    ETFs Vs. Mutual Funds: Choosing For Your Retirement

    Learn about the difference between using mutual funds versus ETFs for retirement, including which investment strategies and goals are best served by each.
  8. Mutual Funds & ETFs

    How to Reinvest Dividends from ETFs

    Learn about reinvesting ETF dividends, including the benefits and drawbacks of dividend reinvestment plans (DRIPs) and manual reinvestment.
  9. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  10. Mutual Funds & ETFs

    Best 3 Vanguard Funds that Track the Top 500 Companies

    Discover the three Vanguard funds tracking the S&P 500 Index, and learn about the characteristics and historical statistics of these funds.
  1. Should mutual funds be subject to more regulation?

    Mutual funds, when compared to other types of pooled investments such as hedge funds, have very strict regulations. In fact, ... Read Full Answer >>
  2. Do ETFs pay capital gains?

    Exchange-traded funds (ETFs) can generate capital gains that are transferred to shareholders, typically once a year, triggering ... Read Full Answer >>
  3. How do real estate hedge funds work?

    A hedge fund is a type of investment vehicle and business structure that aggregates capital from multiple investors and invests ... Read Full Answer >>
  4. Are Vanguard ETFs commission-free?

    While some Vanguard exchange-traded funds (ETFs) are available commission-free from third-party brokers, a large portion ... Read Full Answer >>
  5. Do Vanguard ETFs require a minimum investment?

    Vanguard completely waives any U.S. dollar minimum amounts to buy its exchange-traded funds (ETFs), and the minimum ETF investment ... Read Full Answer >>
  6. Can mutual fund expense ratios be negative?

    Mutual fund expense ratios cannot be negative. An expense ratio is the sum total of all fees charged by an asset management ... Read Full Answer >>

You May Also Like

Trading Center