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Investors know that there are hundreds of income investments, but the savvy ones use market tailwinds to supplement their income with stock price appreciation.
Yes, you read that right, Obamacare.
Admittedly, a lot of the excitement surrounding Obamacare has died down. But it remains that millions of people now have insurance as a result; a big positive for the health-care industry.
And what are some of the best ways to gain exposure to the bustling health-care industry?
Many real estate investment trust (REITs) own the land and buildings of health-care facilities. These REITs can give investors exposure to a variety of industries in the sector without taking on the operational risk of running a hospital or urgent-care facility.
In fact, REITs really are a great place for income investors. This part of the market has a number of tailwinds that should help the companies continue to pay robust dividends while also growing their stock prices.
Take two of the nation’s largest REITs, Health Care REIT (NYSE: HCN) and Ventas (NYSE: VTR). These two companies are big bets on the rapid aging of America’s seniors, meaning the majority of their properties include senior living and skilled nursing facilities. With that, they will be a couple of the best ways to play the aging baby boomers over the next couple decades.
However, aging baby boomers is somewhat of a longer-term thesis.
In the near term, an area of the REIT market that should see the most success from Obamacare is physician practices and other patient-care facilities. Individuals who now have access to health care will not have to use the ER (emergency room) as a doctor’s office. That means physicians should start seeing more repeat visitors in addition to an influx of new customers. With that in mind, here are two of the top income stocks to capitalize on Obamacare:
Income Stock No. 1: Healthcare Trust of America (NYSE: HTA)
Healthcare Trust of America is a pure play on medical office buildings (MOBs). Read: owning and operating MOBs is all Healthcare Trust of America does. Its dividend yield is a robust 4.8%.
The majority of Healthcare Trust of America’s locations are located near medical campuses with major hospitals — usually within just a quarter of a mile. It also manages nearly 90% of its properties itself, allowing it to help focus on keeping property expenses low.
The health-care industry is also expected to add the largest number of jobs of any industry over the next decade. More employees will lead to the need for more offices. That’s good news for an MOB-focused company like Healthcare Trust of America.
Less than 10% of MOBs are owned by publicly traded REITs, leaving plenty of room for Healthcare Trust of America to continue buying up properties to meet the growing number of physicians looking to locate near hospital systems.
Income Stock No. 2: Physicians Realty Trust (NYSE: DOC)
Physicians Realty Trust is one of the smallest REITs around, with a $465 million market cap. But it offers one of the highest dividend yields in the space, at 6.5%. Since its IPO last year, shares of Physicians Realty Trust are up 21%, while the Dow Jones Equity All REIT Total Return Index is up just 5%.
The nice thing about Physicians Realty Trust is that it is a bit more diversified than Healthcare Trust of America when it comes to property types. It leases properties to physicians, outpatient treatment facilities, health-care delivery systems and some hospitals. It also enjoys a high level of occupancy — over 90% —and has an average remaining lease term of 10 years.
Its debt is right at $70 million, which is very reasonable for a REIT when compared to its market cap. This allows Physicians Realty Trust to continue snatching up appealing properties.
Along those lines, Physicians Realty Trust can operate at a scale that the larger REITs can’t; it can purchase smaller properties that can contribute to its bottom line in a meaningful way. With little competition for smaller properties, Physicians Realty Trust has its pick of the prime properties. Some 75% of the company’s MOBs are located within a quarter mile of a medical campus or affiliated with a major healthcare system.
Health insurance coverage is spurring more Americans to visit the doctor. That increases the demand for doctor offices and treatment facilities, which is good news for the companies that own the buildings.
Hence, income investors can profit from the robust dividend yields offered by REITs, while also capitalizing on the rise in stock prices.
Is this happening in your neighborhood?
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