When it comes to income investing I tend to look to for sustainable long-term plays with minimal volume and yields above 4.50%. For this screen I've ventured into a sector that meets not only the above mentioned criteria but also offers growth as a considerable secondary catalyst. The sector I've chosen to examine is the Healthcare REIT sector and the three REITs within that sector are: HCP, Inc. (NYSE:HCP), Health Care REIT, Inc. (HCN), and Omega Healthcare Investors, Inc. (NYSE:OHI).
Before I get into the individual analysis of each REIT, I wanted to look at a few things from a collective perspective. First and foremost is the fact potential investors should note that the average yield of these three companies is 5.47%. The second thing to consider is the fact that all three companies have averaged a return of 3.18% since January 1st. Last and certainly not least is the fact that each of these companies trades an average of just 1.73 million shares per day.
HCP, Inc: Based in Long Beach, Calif., the company is an independent hybrid real estate investment trust. According to its website, "the company acquires, develops, leases, sells and manages healthcare real estate and is considered to be a capital partner to a number of major healthcare providers. The company's unique 5x5 business model includes investments across five diversified healthcare segments and five types of investment products."
From a fundamental perspective, HCP currently yields 4.50% ($2.10), trades on volume of roughly 2.256 million shares per day and has fared very well in terms of earnings performance over the last four quarters.
Although the company's earnings were in-line in its most recent quarter (September 2012), the previous three quarters had surpassed estimates by an average of 3.10% or $0.02/share. Income investors should note that HCP has increased its quarterly dividend a total of four times (which equates to either an increase of $0.0625/share or 13.58%) since February 2009.
Health Care REIT, Inc.: Based in Toledo, Ohio, the firm engages in the acquisition, planning, development, management, repositioning and monetizing of real estate assets primarily in the United States.
According to the company's website, "Our $16.5 billion portfolio spans the full spectrum of health care real estate, including senior living communities, medical office buildings, inpatient and outpatient medical centers and life science facilities. Health Care REIT's investment philosophy is based on establishing long-term relationships with health care systems and senior living operators".
From a fundamental perspective HCN currently yields 4.90% ($3.06), trades on volume of roughly 1.840 million shares per day and has fared very well in terms of earnings performance over the last four quarters.
Although the company's earnings had surpassed expectations in its most recent quarter (September 2012), two of the previous three quarters also saw estimates surpassed by an average of 1.10% with the only exception coming in the March 2012 quarter when earnings were in-line with estimates. Income investors should note that HCN has increased its quarterly dividend a total of four times (which equates to either an increase of $0.085/share or 12.50%) since February 2009.
Omega Healthcare Investors, Inc.: Based in Hunt Valley, Md., the company provides both lease and mortgage financing to qualified operators of skilled nursing facilities (SNFs), assisted living facilities, independent living facilities, rehabilitation and acute care facilities. It also invests in various types of healthcare facilities throughout the United States.
As of September 30, 2012, the company owned or possessed mortgages on 460 skilled nursing facilities, assisted living facilities and other specialty hospitals with approximately 53,269 licensed beds (51,117 available beds) located in 33 states and operated by 47 third-party healthcare operating companies.
From a fundamental perspective, OHI currently yields 7.00% ($1.80), trades on volume of roughly 1.092 million shares per day and has fared quite nicely in terms of earnings performance over the last four quarters. In the last 12 months, the company's earnings have surpassed estimates by an average of 5.00% or $0.025/share. Income investors should note that OHI has increased its quarterly dividend a total of nine times (which equates to either an increase of $0.15/share or 50%) since April 2009.
If you're in the market for a higher-yield low volume play then these three REITs may be a very viable option. Unlike some of their cousins in the Mortgage REIT sector such as American Capital (NASDAQ:AGNC) or Annaly Capital (NLY), which trade at nearly 5.55 million and 13.53 million shares per day, respectively, the above mentioned three REITs offer much lower volatility and are less exposed to such ancillary factors as the Quantitative Easing initiatives and Treasury-based purchases of the Federal Reserve. The best thing, in my opinion, about these REITs is the fact they offer sustainable income with a slight side of growth.
Disclosure: I am long OHI, CIM, NLY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Please note, initial company info was gathered from Yahoo! Finance.