Nursing Home REITs: The Surprise Heroes of High Yield Investing

Key Points

• Nursing home REITs Omega Healthcare Investors, Sabra Health Care REIT, and LTC Properties offer attractive yield for income-seeking investors.
• REITs distribute at least 90% of taxable income to shareholders, ensuring consistent dividends.
• REITs frequently have a lower correlation to the broader stock market, offering diversification benefits.

Is it possible that nursing homes are the unsung heroes of the investment world? 

Yes, it may sound preposterous, but take a look at some equities you probably aren’t familiar with: Omega Healthcare Investors NYSE: OHI, Sabra Health Care REIT NASDAQ: SBRA, and LTC Properties NYSE: LTC. 

You might be thinking, “Nursing homes? Really? I’ll take those exciting, fast-moving growth stocks with artificial intelligence exposure." 

But here’s the thing: With tech stocks declining, and not known to be dividend payers, investors will increasingly turn to dividend stocks as a way to generate income. That becomes even more critical if techs lead the broad market lower, as is happening now.  

Look Beyond Glamor To Find Yield

Nursing home companies aren't your grandma's stocks. Sure, they're not as flashy as tech giants or EV stocks, but you frequently can unearth opportunities among the non-glamorous sectors.

Omega, Sabra and LTC are all structured as real estate investment trusts, which makes them especially advantageous for income seekers.

REITs have built-in tax benefits, as they are required to distribute at least 90% of their taxable income to shareholders. That means REIT investors receive a consistent stream of dividends derived from rental income or property sales. 

REITs can also offer some diversification benefits, as they don’t always show a high correlation to the broader stock market. 

Nursing home REITs tend to offer stable dividends due to long-term lease agreements with healthcare providers, ensuring a regular payout. 

Demographics Driving Industry Success

The over-65 population in the United States is expected to grow significantly in the coming years. This demographic shift is primarily driven by the Baby Boom generation, born between 1946 and 1964. 

As this large cohort continues to age, the proportion of older adults in the U.S. population is projected to increase, leading to a higher number of seniors in need of healthcare services, assisted living and retirement communities, and other age-related solutions. 

That, combined with their income potential means nursing home REITs could be lucrative investments for the long haul.

Omega: High Yield for Dividend Seekers

Maryland-based Omega maintains a portfolio of long-term healthcare facilities, mortgages and other real estate loans on healthcare facilities in the U.S. and the U.K.

The Omega Healthcare Investors dividend yield is a whopping 8.14%, sure to catch the eye of many an income seeker. 

Omega’s analyst ratings show a consensus view of “hold.” Since late July, five analysts boosted their ratings on the stock, or lifted their price targets.

The Omega chart shows a rally of 8.89% in the past month. The stock cleared a cup-with-handle base on September 12 and continued trending higher along its 10-day moving average until slicing through that line on September 27. 

Sabra Capitalizing on Strong Return

The California-based mid-cap has returned 13.94% and is up 17.70% year-to-date.  

MarketBeat’s Sabra dividend data shows a yield of 8.74% and a per-share annual payout of $1.20. That puts Sabra on the list of high-yield dividend stocks. 

Sabra’s primary business consists of acquiring, financing and owning real estate property leased to third-party tenants in the healthcare sector, which is a standard model in the healthcare REIT industry. 

The company generates revenue by leasing properties to tenants and owning properties operated by third-party property managers throughout the U.S. and Canada.

Big-money buyers have had the upper hand, as you can see using MarketBeat’s Sabra institutional ownership page. In the past 12 months, 216 institutions accounted for $542.06 million in inflows, versus 152 sellers accounting for $308.27 in outflows.

LTC Properties: A Solid 7.42% Dividend Yield

LTC Properties, based in southern California, is a REIT that invests in senior housing and healthcare properties through sale-leasebacks, mortgage financing, joint ventures, construction financing and other financing operations. 

Its properties include skilled nursing centers, assisted living communities, independent living communities and memory care centers.

LTC’s dividend yield is 7.42%. 

Wall Street expects the company to grow earnings by 3% this year and next year. Revenue grew at double-digit rates in the past five quarters. Higher interest income from financing activities contributed to that growth. 

Analysts have a price target of $34.43 on LTC, an upside of 12.04%.

While fellow nursing home REITs are showing constructive chart action, LTC is trending lower. If yield is your main concern, as it frequently is with a REIT, that’s not necessarily a problem with a company that analysts expect to grow earnings.