Income investors are naturally attracted to the high yields
found in troubled areas, but buying into weakness is a high risk
Right now, few groups are more beat up than the real estate
While much of the current buzz is about how rising interest
rates are affecting REITs, the health-care REITs have an
additional factor at work. The Affordable Care Act is steadily
moving to full implementation.
Before we consider the ACA, let's look at the fundamentals of
the health-related REITs.
Nine stocks in the property REIT group are health-care related
and trading above 15.
The stock with the best growth in funds from operations (FFO),
which REITs use in lieu of earnings per share, isOmega Healthcare
FFO grew 16%, 15% and 17% in recent quarters, while revenue
popped 25%, 20% and 22%. None of the other eight health REITs
comes close to that kind of consistent growth.
Omega's payout growth is outstanding. The payout has been
lifted in each of the past four quarters -- yes that's right,
quarters. On an annual basis, the payout has slightly more than
doubled since early 2006.
The current annualized yield is 6.3%.
Meanwhile, the stock price is up 25% this year, roughly in
line with the Nasdaq.
The stock appears to be working on a double-bottom base, but
is stuck under its 50-day moving average.
Meanwhile, the ACA remains the elephant in the room. The
subject didn't come up at Omega's August call and for good
For individual companies, the immediate impact is hard to
gauge, and analysts know it.
In its annual report, Omega pointed to "the complexity of the
law and the substantial requirements for regulation," which means
the impact of the law "to us is uncertain."
The market despises uncertainty. Until clarity emerges, the
health care REITs remain a gamble.