Stag Industrial Inc (STAG), Whitestone REIT (WSR): REITs as an Inflation hedge: Three to Watch

Health Care

Health care REITs are far from cheap, having run up in price over the last few years. However, a small collection have solid histories of increasing their dividends annually. Omega Healthcare Investors Inc (NYSE:OHI) is one such company.

The REIT owns or holds mortgages on over 450 skilled nursing facilities and assisted living facilities in about 30 states. As the baby boomers age, demand is going to increase. That said, Omega Healthcare Investors Inc (NYSE:OHI) has more exposure to third party payment issues than many of its peers. That increases the risk from changes being made to health care laws. While that’s a negative, it’s unlikely that payment changes will be draconian in the near term.

With a yield of around 5.9%, the shares yield more than a full percentage point more than industry giant HCP, Inc. (NYSE:HCP). At around half the size of HCP, however, Omega Healthcare Investors Inc (NYSE:OHI)’s growth prospects are better. Although the top-line probably won’t quadruple over the next decade, as it did over the last one, and the dividend probably won’t double again in ten years, continued growth seems fairly certain. The shares would be a great buy with an 8% or so yield.

At Least Watch These Names

Income investors should at least be watching the three REITs above. The yields are compelling now, particularly relative to competitors, and the shares have already seen a sell-off. That said, if rates really start to head higher, there could be some more near-term pain to deal with. Longer term, however, all three are likely to provide both upside potential and rental growth that keeps up with or surpasses inflation.

Reuben Brewer has a position in HCP. The Motley Fool has no position in any of the stocks mentioned. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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