The fourth quarter of 2018 was downright terrifying for retired investors with stock market exposure. Mounting trade tensions with China, sinking oil prices, and rising interest rates in the U.S. made it a terrible quarter for stocks across the board.
The benchmark S&P 500 index has fallen around 14% since the beginning of October, but these top retirement stocks have emerged unscathed. Some investors might not find these businesses as exciting as tech-driven titans that grab headlines, but their resilience during market downturns makes them perfect for retirees.
Company (Symbol)
Specialty
Performance vs. S&P 500 Since Oct. 1, 2018
Dividend Yield
Market Cap
Omega Healthcare Investors(NYSE: OHI)
Nursing homes
19%
7.8%
$6.8 billion
Physicians Realty Trust(NYSE: DOC)
Medical office buildings
10%
5.8%
$2.8 billion
Ventas(NYSE: VTR)
Diversified healthcare
23%
5.4%
$20.4 billion
All three of these companies are real estate investment trusts (REITs) that serve a rapidly rising population of older adults that need more healthcare services than the average person. They're perfect stocks for retirees because REITs can avoid paying corporate taxes by distributing nearly all their profits to shareholders as regular dividend payments.
Retired couple looking at finances.
Image source: Getty Images.
Omega Healthcare Investors: Ready to bounce back
Omega Healthcare's real estate portfolio includes 720 nursing homes and 116 assisted living facilities spread throughout the U.S. and the U.K. It doesn't operate its facilities, but instead rents them out using long-term triple net leases. This arrangement usually leads to steady cash flows because all the variable costs of building ownership become the tenant's responsibility.
Right now, Omega offers an eye-popping 7.8% dividend because Omega recorded a $172 million loss allowance in 2017 related to 38 facilities leased by Orianna Health Systems, a nursing home operator that filed for Chapter 11 earlier this year. Omega's transitioned enough former Orianna facilities to other operators that management lowered the loss allowance to just $76 million, which suggests a return to regular dividend raises could be around the corner.
Omega Healthcare Investors raised its payout for 22 consecutive quarters before freezing its dividend in place in 2018 after the Orianna debacle began unfolding. It looks like shareholders can reasonably expect the dividend to thaw in 2019. Funds from operations (FFO) reached $3.03 per share in 2018, which is more than enough to cover dividend payments that currently work out to $2.64 per share annually.
It doesn't look like a handful of leftover Orianna facilities will stop the company from returning to regular payout bumps in 2019. In the years ahead, a rapidly rising population of older Americans will provide a steady push in the right direction.
Doctor with stethoscope around his neck and cash in his pocket.
Image source: Getty Images.
Physicians Realty Trust: The doctors will pay you now
In 2012, there were 19.2 million Americans over the age of 75, and the U.S. Census Department thinks this population will grow to 44.3 million by 2040. This age group spends a lot of time inside medical office buildings (MOBs) that healthcare providers lease from Physicians Realty Trust.
This REIT has geared its portfolio toward medical office buildings leased on a triple net basis to leading health systems. Physician's Reality prefers leasing MOBs to big health systems because they tend to be steadier with payments during tough times. This helps explain how Physicians Realty Trust's portfolio is 96% leased out, a rate that leads the industry.
From 2018 through 2022, lease expirations are expected for properties representing just 3.5% of total rent payments Physicians Realty collects annually. With years of reliable cash flows ahead, this REIT shouldn't have any trouble making and raising dividend payments in the years ahead. Physicians Realty generated $1.16 per share in funds from operations over the past year, which is more than enough to pay a dividend that offers an annualized $0.92 per share at the moment.
Piggy bank on stacks of money.
Image source: Getty Images.
Ventas: A big player with a little of everything
Extra cautious retirees nervous about too much concentration in any one aspect of a shifting healthcare landscape will appreciate the diversity Ventas provides. We don't need to look further than Ventas' most recent quarterly results to see the benefits of having fingers in more than one pie.
In the third quarter, net operating income (NOI) from the senior housing properties Ventas operates fell 2.7% compared to a year earlier. Luckily, moderate growth from university-based life science properties in its office portfolio, and triple net leased properties allowed overall NOI to rise 1.3% on year.
Investors will want to keep their eye on Ventas' expanding university-based life science business. The University of Pennsylvania campus officially opened in September and Ventas expected 90% occupancy at the end of 2018. With a robust development pipeline of similar projects ready to go, the office segment could be an important growth driver in the years ahead.
Ventas expects 2018 normalized FFO to land between $4.03 and $4.07 per share. The company shouldn't have any trouble covering dividend payments, which currently work out to an annualized $3.17 per share.
Though Ventas barely nudged its dividend forward in 2018, significantly lower interest payments could inspire much larger increases this year and beyond. During the year-ended September, Ventas lowered its outstanding debt by 8% to $10.5 billion, and since the end of 2017, the company's refinanced or repaid $3.2 billion of debt.
Less to worry about
These high-yield healthcare REITs aren't going to make anyone rich overnight, but reinvesting modestly growing dividend payments can lead to market-beating gains over the long run. With an unstoppable wave of older adults coming to visit and reside in their facilities, these stocks are poised to maintain steady dividend payments throughout any stock market downturn.
Cory Renauer owns shares of Omega Healthcare Investors. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
