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Thanks to low interest rates and fears over a bond bubble, many investors have looked to stocks in order to provide their portfolios with current income. Traditionally, sectors such as utilities, consumer firms and financials have been popular choices for those looking for yield in the stock market, but a variety of healthcare companies have become quality choices as well over the past few years. While many investors may think of big pharma as the place to go for yield in the healthcare segment, there is one corner of the market that is likely overlooked but could provide similar levels of current income.

That segment is the long-term care industry, a slice of the healthcare market that is experiencing rapid growth thanks to an aging population and growing demand for services thanks to a longer lifespan. Furthermore, since firms in this corner of the market do not have to worry about patents or drug pipelines, they can often be a safer choice for investors than the volatile biotech and pharmaceutical industries, making long term care firms excellent choices for those that are looking for safe, dividend paying equities.

Unfortunately for investors, the vast majority of companies in this segment are private and the few that are publically traded do not spit off massive dividends on a regular basis. Luckily, there are a few good choices that do pay out yields in excess of 3% a year and could fill all the criteria that investors are looking for in this market sector. Additionally, investors should note that all three of these firms are small market cap companies with capitalization levels below half a billion dollars. While this could result in more risk, it also allows for easier growth as well, something that investors should prize in this increasingly popular and important piece of the market.

Yet, while all three of the companies offer high yields there are some key differences that investors should be aware of before making a selection. Below, I take a closer look at these small-cap firms in order to give investors a better idea of their future investment prospects and the pros and cons of each.

Assisted Living Concepts (NYSE:ALC)

ALC is a Wisconsin-based provider of senior living facilities with over 200 residences across 20 states, mostly in the assisted living segment. Revenues have been mostly flat for the firm over the past four fiscal years, only increasing by 3% in the time frame. While this is somewhat troubling, growth prospects remain strong for the firm as the company announced plans to add about 400 units a few years ago and is currently bringing these new revenue centers online. Additionally, the firm has done a great job at keeping costs under control which should help to soothe some investor worries. Lastly, investors should also note that the company has decreased its dependence on Medicaid revenues over the past three fiscal years. Medicaid patients represented 8% in 2008 and just 2% last year, a potentially good thing given increasingly strained state budgets around the nation.

Given the increased focus on private-payers and the move to add more beds in properties across the country, ALC could have a bright future. Furthermore, with a payout ratio of just 5% , the company should be able to comfortably pay out its dividend to investors for years to come, or even increase the payout, with ease. This should help to allay any fears in the meantime, especially if the company continues to show sluggishness in terms of growing revenues in the near term.

Advocat (AVCA)

By far the smallest company on the list, Advocat has a market cap of just $34 million. Yet despite the company’s size, it packs a punch in the dividend department, paying out yields of 3.7% to investors, higher than either of the other companies on this list. While this is certainly encouraging, the company does have a razor thin profit margin of just 1.25%, roughly one-fourth of the other two firms on the list. Furthermore, the company does have a much higher dependence on debt in order to fuel operations. While this may not be much of a concern now, a spike in interest rates could definitely hurt this company and its ability to roll over debt.

In terms of its current operations, AVCA has seen solid levels of growth in its revenues as the company has seen a steady 5% growth rate over the past two years. This comes despite a reduction in total beds when comparing this year to the previous one, suggesting that the company is becoming more efficient in terms of turning revenues into profits. Nevertheless, the company’s heavy focus on Medicare and Medicaid patients is somewhat troubling, especially if state budgets deteriorate further. This combined with AVCA’s relatively high debt load and dependence on leasing as opposed to owning properties should force investors to consider this a higher risk choice in the space.

National HealthCare Corporation (NYSEMKT:NHC)

NHC is the "giant" on this list, with a market cap of just under half a billion dollars. The company also has the highest ROA and ROI on the list, nearly doubling the other two firms. Furthermore, the company also has the highest profit margin - at 8.35% - beating out its competitors once again on this metric. However, the company is more dependent on Medicare and Medicaid revenues than other firms, as NHC derives close to 30% from Medicaid.

In terms of growth, the future looks pretty rosy for NHC as the company has announced plans to purchase or lease a variety of facilities, possibly helping to grow revenues for the firm in the near term. Investors have already started to see this over the past few years as the company has seen net operating revenues grow by 31% over the past five years while expenses have grown by 29% in comparison. Assuming that NHC can find more synergies in its future acquisitions, a hike in dividends is not completely out of the question. The company has a payout ratio of 29% and a move higher in yields could help the company to attract more long-term investors as well, especially if it can get closer to the key one billion market cap level.

Source: Should You Consider These 3 High Yield Healthcare Stocks?