HCP, Inc. (NYSE:HCP) (5.0% Yield):
HCP, Inc. (NYSE:HCP) in another healthcare REIT that offers a big dividend yield (currently 5.0%) and it’s trading at a discounted price. HCP has been through the ringer over the last year as it worked to spin-off its underperforming skilled nursing facilities properties to a totally separate REIT, Quality Care Properties Inc (NYSE:QCP). Many risk averse investors have been shunning both HCP and QCP because they’re uncomfortable with the risks and uncertainty.
However, if we look at the combined market capitalization of both HCP and QCP in aggregate, it seems the total valuation has declined more so than other comparable REITs. Granted, QCP’s ManorCare properties are basically a dog with fleas, but there could be an attractive contrarian opportunity here as we wrote about in early August when the spin-off was first announced: HCP’s Big Dividend and Its New QCP Risks. HCP, Inc. (NYSE:HCP) and QCP have much more flexibility now with regards to how they run their businesses (a good thing), and investors now have a choice between HCP and QCP, which opens the stocks up to a wider investor base (also a good thing).
Follow Healthpeak Properties Inc. (NYSE:DOC)
Follow Healthpeak Properties Inc. (NYSE:DOC)
Omega Healthcare Investors Inc (NYSE:OHI) (7.6% Yield):
Omega Healthcare Investors Inc (NYSE:OHI) is also a skilled-nursing facilities REIT, albeit a less risky one in our view (i.e. they’re not dealing with the same draconian challenges as QCP’s ManorCare). Regardless, Omega’s returns have lagged the S&P 500 over the last year, and it currently has a significantly high “short % of float.” In our view, the market is overly pessimistic, and this is a very compelling, big-dividend, contrarian opportunity. We suspect regulatory risks and concerns are significantly overblown as President Trump has recently pledged to “provided insurance to everybody” under his plan to repeal and replace the Affordable Care Act.
It seems likely that the new administration will not reduce access to healthcare thereby shrinking the size of the healthcare pie (and the healthcare REIT pie), but rather he’ll simplify the laws, giving more control to the people and to businesses (instead of the government) and this will ultimately help skilled nursing facilities reimbursement fears abate (i.e. there will continue to be a growing market for skilled nursing facilities), and it will help Omega Healthcare Investors Inc (NYSE:OHI)’s stock price rise (due to less fear and more opportunity).
Follow Omega Healthcare Investors Inc (NYSE:OHI)
Follow Omega Healthcare Investors Inc (NYSE:OHI)
Conclusion:
Healthcare REITs have gotten a lot cheaper, and their valuations have gotten a lot more attractive, in our view. If you’re comfortable with the near-term volatility as the market adjusts to a new aggressive-growth US president, and you believe in the long-term mega-trends underlying the space, then the REITs highlighted in this article may be worth considering, depending on their particular valuation metrics and your level of aversion to skilled nursing facilities, for example. We’ve made similar data available for Industrial and Retail REITs here: 60 Industrial and Retail REITs Yielding Over 4%. And if you are a long-term income-focused investor, then current market conditions make big-dividend REITs in general worth considering for an allocation within your diversified long-term investment portfolio.
Note: This article was written by Blue Harbinger. At Blue Harbinger, our mission is to help you identify exceptional investment opportunities while avoiding the high costs and conflicts of interest that are prevalent throughout the industry. We offer additional free reports and a premium subscription service at BlueHarbinger.com. If you are ever in the Naperville, IL, USA area, our founder (Mark D. Hines) is happy to meet you at a local coffeehouse to talk about investments. Please feel free to get in touch.
