The health care industry seems to have a better grasp of what
President Obama's reforms mean for business. Now executives can
calculate their next steps, and investors are pushing up prices for
shares of health care related stocks.
For income investors seeking dividends, health care stocks are
often attractive because of decent yields - but also because they
are resilient in flat, or downward trending, markets. Health care
is typically a defensive sector, and if stock prices do fall higher
yields usually mean shares get snapped up quickly - thus putting a
higher floor under the stocks.
Based on the performance of the
iShares Healthcare Providers ETF (
however, the story is all about higher stock prices, not lower
ones. The ETF is already up 9.2 percent after just a month and a
half in 2011 after rising by 8.7 percent in all of 2010.
With a dividend yield of 6.2 percent this ETF is an attractive
option for income investors interested in a defensive play.
Dig into the ETF a bit however and you'll find a number of small
cap stocks paying attractive dividends as well. The attraction
strengthens when you consider that this sector has seen several
Already in February, we've seen two substantial deals:
said it would pay $690 million for privately held DSI Renal to
expand its presence. And
Kindred Healthcare (
created the largest network of U.S. rehabilitation facilities by
Rehabcare Group (
for $900 million
Universal Health Services (
is an attractive health care stock that is worth a look. The stock
makes up 1.9 percent of IHF's net assets, and pays a small dividend
yielding 0.5 percent.
That yield is far below the
9 percent yield that some specialty companies are
paying right now
But capital gains potential is still significant with Universal
Health Services. The stock rose 52 percent over the past year.
***Investing in the health care sector really comes down to
demographic trends. Baby Boomers are turning 65, and an aging
populace has a need for greater health care services. In the U.S.
in 2010, about 10 percent of the population was 65 years old or
older. This will nearly double by 2030.
Universal Health Services operates acute-care and
behavioral-health facilities. The company's goal is to lead in
markets that are growing faster than the U.S. population as a
whole. Nearly all of the UHS acute-care hospitals rank first or
second in their markets.
The company is the dominant player in Las Vegas and South Texas,
areas hard hit by the recession. UHS draws 24 percent of net
revenue from Nevada, another 20 percent from Texas and about 10
percent from both California and Florida.
The company also completed the acquisition of Psychiatric
Solutions in November. The deal brought together 25 acute-care
hospitals and 102 behavioral health-care facilities (owned by UHS)
and the 94 free-standing psychiatric inpatient facilities owned by
Universal Health Services had 2009 net revenue of $5.2 billion,
about a quarter coming from behavioral health, and the rest from
The behavioral business has
"...weathered the recession quite nicely
," stated CFO Steve G. Filton at the UBS Global Healthcare Services
Conference on February 8. He also commented that there are signs
that acute care is coming back.
For 2009, earnings per diluted share increased 28 percent to
$2.49. Analysts surveyed by Thomson Reuters expect the company to
post $2.56 in earnings per diluted share on February 28, when it
reports its 2010 results -- a small 3 percent increase as it
absorbs its large acquisition.
After a year of essentially flat earnings in 2010 (the company
is expected to have earned $2.56 per diluted share) analysts are
now predicting a substantial 38 percent increase in earnings per
share for 2011, to $3.53.
With a forward P/E of 12, Universal Health Services is a value
play among the health-care providers. And investors that get in
early should be looking for that dividend yield to increase as the
company grows earnings in the future.
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