One of the chief concerns for many investors as they enter into retirement is healthcare. According to the Center for Medicare and Medicaid Services (CMS Research), individuals over 75 spend nearly 200% more on healthcare expenditures than the average population, and generalized healthcare expenses have been rising significantly faster than the overall economy or personal incomes for more than 40 years. Facing rising healthcare costs is certainly a scary proposition. Over the longer term, broad healthcare investments such as the First Trust Health Care AlphaDEX (ARCA:FXH) should continue to do well. However, as America's population continues to live longer, they will require more medical services. More medical service equals more medical real estate. For investors, these assisted living facilities, hospitals and doctor's offices could be the best way to play our aging population.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.


Big Potential from Medical Property
As the nation ages and medical advancements continue to improve the quality of life and longevity, the prognosis for medical related real estate continues to get better. Overall, the number of Americans age 65 and older is expected to grow 36% between 2010 and 2020. That compares to just a 9% growth rate for the general population. 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. For investors, there are plenty of opportunities to participate in the growth of these facilities.

There are a number of real estate investment trusts (REIT) designed to take advantage of this long-term macroeconomic trend, and so far they've been great performers. Over the past 10 years, healthcare focused-REITs have delivered annualized total returns of 19.9%. Over the same time period, broad REIT measures like the Vanguard REIT Index ETF (ARCA:VNQ) only returned an average of 11.4% per year. In addition, these healthcare REITs pay higher overall dividends than their wide reaching real estate twins. The average medical property firm currently yields 5%, while the Vanguard ETF currently yields 3.32%.

The main reason for their outperformance has been the recession resistant nature of healthcare. Unlike shopping malls, factories or sports complexes, healthcare is not closely tied to job growth or consumer spending. While there are some worries about the effects of healthcare reform and dwindling government-based health insurance programs on the sector, they seem overblown. At the end of the day, when it comes down to buying a sweater or life sustaining medicine, consumers will go with the obvious choice. In addition, many medical REITs have been expanding beyond "health insurance' related properties and into more patient out-of-pocket facilities like senior living facilities and nursing homes. For more information, see Recession And Depression: They Aren't So Bad.

Betting Big on the Sector
For investors, REITs like National Health Investors (NYSE:NHI) stable cash flows, a recession resistant nature and long-term growth profiles makes them an ideal candidate for an income portfolio. There are plenty to choose from and many offer big dividends as well as great long-term gain potential.

Like many sectors of the market, mergers and acquisitions seems to be a growing trend. Large firms with strong balance sheets continue to snatch-up smaller rivals. The healthcare property sector is no different. Cash cow Health Care REIT (NYSE:HCN) made $6 billion dollars' worth of property investments and acquisitions throughout 2011. These investments have helped the REIT post a sub-sector leading 21% total return in 2011 and 4% dividend increase for 2012. The company recently announced a $925.2 million deal to buy senior-housing properties in Canada, which also drive FFO growth. Likewise, Ventas (NYSE:VTR) made $11 billion in property purchases in 2011 which have delivered strong results. The Chicago-based REIT currently yields 4.4%. Both firms represent great starting points for medical REIT investors.

For those investors looking for higher yields, both Sabra Healthcare REIT (Nasdaq:SBRA) and Medical Properties Trust (NYSE:MPW) could be the ticket. MPW provides capital to facilities through long-term triple-net leases, while Sabra functions as a more of a traditional property owner. Both stocks currently yield more than 8%.

The Bottom Line
America's aging population will ultimately require more medical focused real estate. For investors, the sector can provide high stable cash flows as well as growth potential. The previous stocks along with HCP (NYSE: HCP), make ideal starting points for a portfolio.

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

At the time of writing, Aaron Levitt did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Home & Auto

    Millennials Guide: How To Read a Lease

    Everything you need to know before you rent a home.
  2. Home & Auto

    Living in New York City: Co-ops vs. Condos

    Buying an apartment in New York City means familiarizing yourself with the pros and cons of these two types of dwellings.
  3. Stock Analysis

    Net Neutrality: Pros and Cons

    The fight over net neutrality has become an amazing spectacle. But at its core, it's yet another skirmish in cable television's war to remain relevant.
  4. Personal Finance

    Protect Your Home From Medicaid Liens

    Plan ahead for long-term care needs to protect your home and your estate.
  5. Home & Auto

    Renting vs. Owning: Which is Better for You?

    Despite the conventional wisdom, renting might make more financial sense than you think.
  6. Home & Auto

    When Are Rent-to-Own Homes a Good Idea?

    Lease now and pay later can work – for a select few.
  7. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  8. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  9. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Hard-To-Sell Asset

    An asset that is extremely difficult to dispose of either due ...
  3. Sucker Yield

    When an investor has essentially risked all of his capital for ...
  4. Commercial Real Estate Loan

    definition of a commercial real estate loan
  5. PT (Perseroan Terbatas)

    An acronym for Perseroan Terbatas, which is Limited Liability ...
  6. Ltd. (Limited)

    An abbreviation of "limited," Ltd. is a suffix that ...
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!