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2 High-Yielding Health Care REITs Stay In Growth Mode

By: Investor's Business Daily
Posted: 4/21/2014 5:31:00 PM
Referenced Stocks: HCN;OHI

After a year of underperformance in 2013, real estate investment trusts (REITs) have started off 2014 with a bang. IBD's Finance-Property REIT group is up 9% compared with a nearly 1% gain for the S&P 500.

The move is a bit counterintuitive amid the prospects for higher interest rates, but a couple of REITs are well positioned for growth thanks to an aging U.S. population and a rise in senior-citizen spending on health care.

S&P 500 componentHealth Care REIT ( HCN ), with a market capitalization of $18 billion, invests in health care and senior housing facilities in the U.S.

When the company reported Q4 results in February, funds from operations (FFO) rose 16% from a year ago to 99 cents a share. Revenue surged 59% to $788.6 million. Big revenue growth in recent quarters is a result of its 2012 acquisition of Sunrise Senior Living for $845 million.

Concurrent with its earnings release, Health Care REIT paid its 171st consecutive quarterly cash dividend of 79.5 cents a share, up 4% sequentially. It yields 5.1%. Q1 earnings are due May 8 before the open.

Omega Healthcare Investors ( OHI ), meanwhile, is smaller with a market capitalization of $4.3 billion, but fundamentals are solid here as well with seven straight quarters of double-digit bottom-line and top-line growth.

The company invests primarily in long-term health care facilities. At the end of 2013, Omega owned 538 facilities with a capacity of 61,178 beds in 37 states.

In 2013, annual return on equity hit an all-time high of 14.9%, an indication of a solid management team. Annual pretax margin was 41.2%.

On Friday, Omega raised its quarterly dividend for the seventh straight quarter to 50 cents a share, giving it a current yield of 5.8%. Q1 earnings are due April 29 after the close.