4 Healthcare REITs For A Healthier Retirement Portfolio

Introduction

To be considered prudent investors we must recognize and accept the undeniable reality that all true investing is done in future time. Consequently, the key to long-term investment success is to forecast the future as accurately as we possibly can. Of course, we must simultaneously recognize and accept that forecasting the future can only be accomplished within a reasonable degree of accuracy. Forecasting the future, and investing for that matter, can never be a game of perfect. Nevertheless, our investing success will ultimately be achieved based on how good our forecasts turn out to be.

With those realities in mind, there are multiple degrees of difficulty associated with the process of forecasting. In other words, even though all forecasting is dealing with unknowns, there are certain things that are more knowable than others. Once again, nothing about the future is perfectly clear, but there are certain future trends that are more unmistakably defined, and therefore, easier to make reasonably accurate forecasts upon.  The aging of our population, also referred to as the graying of America, is one important demographic that lends itself to reasonably accurate forecasts.

The consumption patterns of an aging population are knowable and thus provide clues to potentially growing and profitable industries. For example, healthcare is an obvious business segment that will be called upon to serve our rapidly increasing elderly population. Consequently, it seems rational to conclude that many businesses operating in healthcare are poised for rapid and large growth. As a result, investors looking for attractive long-term opportunities would be wise to evaluate and consider investing in businesses in the healthcare sector.

However, even though forecasting is the key to future investment success, it is not the only or final step in the successful investing equation. Even when you have great confidence that you have identified a growing industry to invest in, prudent investors must still be careful about the valuation they must pay in order to invest. Prudent investors understand that price is what you pay, but value is what you get. Prudent investors recognize that you can overpay for even the best business or the greatest growth opportunity.

Additionally, although forecasting is the key, there is still a great deal of value and importance that can be gained from reviewing history. In fact, I believe it is wise and prudent to look at history first, if for no other reason than determining whether or not an individual investment is worthy of the work required before conducting a forecasting effort.

Attractively Valued Healthcare REITs: Exciting Opportunities for the Retired Dividend Growth Investor

A high and growing dividend income stream is widely considered as the primary attraction for investing in Real Estate Investment Trusts (REITs). By law, REITs are required to pay out at least 90% of their taxable income to shareholders each year. Additionally, publicly traded equity REITs provide investors the opportunity to participate in the growth of the underlying real estate while simultaneously providing liquidity not commonly associated with real estate.

Generally speaking, REITs are available in two broad categories, equity REITs and mortgage REITs. Equity REITs are available that participate in almost all aspects of the economy.  However, this article is specifically looking at equity REITs that serve the growing healthcare segment of our economy. But most importantly, this article will be reviewing healthcare REITs that are currently attractively valued.

REITs and Interest Rates

However, before I specifically cover the healthcare REITs suggested below, a few words regarding REITs and interest rates are in order. There are many people that suggest and/or believe that REITs are specifically an asset class that is highly vulnerable to the prospects of rising interest rates.  Moreover, there are many people that are avoiding good investment opportunities over this same fear. I am not sure, but wonder, precisely what these people are suggesting. If it’s a total collapse, lose all your money type of scenario, then I personally believe these fears are drastically overblown.

Rising interest rates might have a negative effect on stock valuations, at least in the short run. On the other hand, well-run businesses, REITs included, have prospered under various interest rate scenarios.  But most importantly, I believe it is illogical to assume that equity values, REITs included, are doomed to collapse when interest rates do in fact increase.  Interestingly, there are those that contend that just the opposite might occur. Therefore, I offer the following contrarian views about the impact of interest rates on equities, REITs included (Bold emphasis added is mine):

From Investopedia:

“The Bottom Line
The interest rate, commonly bandied about by the media, has a wide and varied impact upon the economy. When it is raised, the general effect is a lessening of the amount of money in circulation, which works to keep inflation low. It also makes borrowing money more expensive, which affects how consumers and businesses spend their money; this increases expenses for companies, lowering earnings somewhat for those with debt to pay. Finally, it tends to make the stock market a slightly less attractive place to investment.

Keep in mind, however, that these factors and results are all interrelated. What is described above are very broad interactions, which can play out in innumerable ways. Interest rates are not the only determinant of stock prices and there are many considerations that go into stock prices and the general trend of the market – an increased interest rate is only one of them. One can never say with confidence, therefore, that an interest rate hike by the Fed will have an overall negative effect on stock prices.”

Here are a few excerpts from an article in the Wall Street Journal found here:

“Although bonds usually beat stocks when rates rise, they haven’t always. The most extreme exception: the period from 1979 through 1982, when then-Fed Chairman Paul Volcker was increasing rates to snuff out inflation. Stocks outperformed bonds by a wide margin during that time.

Of course, financial history never repeats itself exactly, although it does rhyme. And the Fed’s monetary policy is just one of a multitude of factors that influence the stock market, so you would be foolish to base your investment decisions on that alone—especially because the central bank’s predictions of what it will do don’t always come to pass.”