Friday File: “Lock in 7.2% Dividends and 15% Gains from the Biggest Demographic Shift in U.S. History”

What are the income investments teased by Contrarian Income Report?

By Travis Johnson, Stock Gumshoe, February 5, 2016

I didn’t do anything with my portfolio this week, and I don’t think we’ve had significant news that changes my opinion about any of the stocks I wrote about in our Annual Review about ten days ago, so today I’ll just dig into a teaser pitch for your Friday File edutainment.

Here’s the intro to the latest teaser pitch from Contrarian Income Report:

“Lock in 7.2% Dividends and 15% Gains from the Biggest Demographic Shift in U.S. History

“Three companies are reaping huge profits from this unstoppable mega-trend and payouts are set to increase every year for the next 3 decades.”

Sounds like a tonic for our times, right? High dividends, good gains, mega-trend. What more could a spooked investor want? So I went digging to figure out which stocks he was talking about.

The “mega-trend,” as you’ve probably guessed, is “the population is getting older” …

“There’s a bull market unfolding as Americans get older, and it will run for at least two or three decades. Here’s what’s driving profits in the America-is-getting-older trend:

  • 77 million Baby Boomers, born between 1946 and 1964, make up nearly 28% of the entire US population.
  • We’re living longer than ever before thanks to healthier choices and advances in medical technology. That means the 65+ population will double and the 85+ population will triple in the coming years.
  • Americans over 65 are three times more likely to be admitted to a hospital, and for longer periods of time and for more expensive types of care.”

All of that remains true, regardless of the fact that the broad healthcare sector has corrected and is off 15-20% over the last six months (thanks in large part to the fact that the most volatile segment of the healthcare sector, biotechnology, is down more than 30% during that time). This is not news to investors or demographers, who’ve been aware of a little group we call the “baby boomers” for quite some time… and that’s why health care before that had been such a long-term outperformer (over ten years healthcare broadly is up more than 100%, biotech more than 200%… with most of those gains coming in just the past five years).

But what’s the big dividend/gains opportunity being teased about here by Brett Owens? More from the ad:

“The Bull Market in 65+ Healthcare Will Continue for Decades…

“Older adults spend 5-times as much on healthcare as other adults. They visit physicians offices 2.5-times more than other adults.

“Also, those 65 or older are spending 3-times as much time in a hospital than their counterparts 45-64 years of age, on average….

“I like two avenues the best – skilled nursing facilities, and hospitals. There’s no scenario you can draw up for the future that doesn’t heavily involve both types of providers.

“And the economics for those running both types of facilities today are better than you’d ever imagine.

“Believe it or not, as early boomers move out of their suburban homes and into retirement communities, they don’t have many viable options when increased levels of care are required.”

Ah, so if it’s yield we’re focused on, and think skilled nursing facilities and hospitals are key properties, then it must be health care REITs he’s teasing. Maybe even some of the ones we’ve covered before (or those that I own, like DOC or MPW).

Why these particular asset classes? Here’s a little more from the ad:

“SNF Supply is Actually Decreasing as Demand is Booming

“Skilled nursing facilities, or SNFs, provide the highest level of care an older adult can receive while still living independently. Whether its for a long-term stay, rehabilitation following a surgical procedure or to manage a specific medical event, residents generally get their own room, their own bed, and a private bathroom.

“While demand for SNFs is heading steadily up, supply—surprisingly—is constrained. Many states limit new SNF construction. As a result, there are now 94 fewer U.S. facilities than there were in 2008….”

OK, so falling supply and rising demand sounds like a reasonable rationale for buying into an asset class. And we’re told that in the case of skilled nursing facilities, government and other insurance programs (Medicaid, mostly) pay most of the bills and are incentivized to push skilled nursing over more costly options (hospitals and rehab facilities, mostly).

Then we get into teasing some of the specific ideas from Owens’ Contrarian Income Report:

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“Rising demand, government-restricted supply, and access to Uncle Sam’s pocketbook means the rent will keep going up. It’s a great business to be in – which is what attracted me to my first two favorite healthcare plays….

“Healthcare Income Buy #1 Pays 6.7%

“Firm #1 has increased its dividend by 138% over the last decade….

“The company owns more than 900 properties in 41 states, making it the leading investor in skilled nursing facilities in the U.S. And it doesn’t have to worry about actually running the facilities it owns. Instead, it partners with the leading operators in the space and shares in the consistent profits….

“The firm has increased its payout for 13 consecutive quarters and counting…

“The dividend growth is being powered by good old fashioned cash flow growth. Revenues have risen 20% year-over-year for the last 3 years.

“The good times should continue for years, as this highly fragmented industry is consolidating – with firm #1 likely to be a big winner. A full 84% of all skilled nursing facilities will be ‘up for grabs’ in the years ahead.”

So which one is this? Thinkolator sez it’s Omega Healthcare Advisors (OHI), a REIT that specializes in long term care facilities. Omega has indeed hiked its dividend each quarter for several years, though it’s 14 quarters now (they hiked in January, probably after the ad copy was written) — that’s obscured a little bit because of special dividends, but the base dividend has gone up consistently. Currently the yield is 7.2% if you annualize the most recent payout (that is, 57 cents times four, divided by the current share price of $31.70). </