Whenever I need inspiration for a newstock idea, I think about
Yes, Levi Strauss -- the man who invented blue jeans.
As a scrappy European immigrant to the land of opportunity,
Strauss went West during the California Gold Rush in the
mid-1800s seeking his fortune. But he didn't go as a prospector.
Instead, Strauss made his first fortune selling pickaxes, shovels
and other supplies to 49ers in search of gold. His second and
much larger fortune was made when he decided to make pants out of
tent canvas, dye them blue with indigo and sell the durable
outerwear to would-be gold miners.
Simplyput , Strauss was an expert in finding trends and
profiting from them.
This kind of savvy reminds me of a company I've followed for
more than a decade now. I'm talking about
Senior Housing Properties Trust (
, areal estate investment trust (REIT) .
And I like this company particularly now, because it's seizing
a huge opportunity to make alot ofmoney .
Let me explain.
Every day in the United States, 10,000 people turn 65. As
those people get older and need more care, they'll need somewhere
to go. Senior Housing manages a $5.3 billion portfolio consisting
of nearly 400 properties that include senior-living centers,
skilled-nursing facilities, medical office buildings and wellness
centers across 40 U.S. states.
Obamacare Headwinds? Fuggedaboutit
Considering the rapidly changing landscape of U.S. health care,
it's easy to see why Senior Housing could face significant
headwinds at first glance. After all, the largest portion of the
nation's aging population still heavily relies on government
subsidies such asSocial Security andMedicare to help pay for
senior lifestyle and care facilities. In this sense, a health
care REIT would likely be negatively affected by slow government
pay and the fiscal uncertainty of federal entitlements.
But that's not the case with Senior Housing. About 94% of
Senior Housing's netoperating income comes from private-pay
properties. This means tenants pay out of their own pockets,
rather than relying on a government subsidy or voucher system. So
the company's dependence to government reimbursement (and the
uncertainty that comes with it) is extremely limited. In
addition, about 32% of the properties are multi-discipline
medical office buildings with blue-chip health care tenants such
Boston Scientific (
Quest Diagnostics (
Strike Gold With The Golden Years
The U.S. population of 85-plus is growing at a much faster rate
than the rest of the country's population, according to the U.S.
Census Bureau. By 2025, the population of 85-plus is projected to
grow by 25%. By comparison, the under-85 population should grow
just 15% over the same period. Over the next four years, the
85-plus population is expected to grow 10% larger than it is
today -- twice as fast as the under-85 population.
These undeniable demographic trends and the stock's consistent
performance make Senior Housing a great addition to any
retirement portfolio. It's already a core holding in many of my
The company has been expanding quickly. This past year, Senior
Housing raised more than $650 million incapital market
transactions and gained access to a $750 millionunsecured credit
facility . Despite this fast growth, it's been able to keep
itsbalance sheet less leveraged than many REITs', with a
debt-to-capital ratio of just 37%.
In addition, the company has performed consistently through
the years. In addition to a growing stock price, Senior Housing
has steadily raised thedividend from $1.20 a share in 2000 to a
recent $1.56 a share, which brings theyield to just over 6%. Add
that tocapital appreciation , and you have a compounded annual
return of 47% during the past 13 years. Not bad for a "lost
decade" ofinvesting ...
The fact that REITs are required by law to pay 90% of
theirincome as dividends to shareholders -- regardless of whether
their share price goes up or down -- makes this an even sweeter
Risks to Consider:
Although the lion's share of Senior Housing is private pay --
which implies relatively affluent tenants -- tougher economic
conditions or external circumstances such asinflation , could
affect the company's pool of qualified prospects in the senior
lifestyle and assisted-living segment. In addition, as part as
their different tax structure, REITs don't pay incometaxes . This
means their dividends are usually fully taxable.
Action to Take -->
I see Senior Housing as a long-term holding, especially if you
are building a retirement, income-focused portfolio. This
doesn'tmean the stock can't perform well in the shortterm . Based
on favorable long-term demographics and the company's history of
consistency, a 12-monthprice target of $29 is completely