Income is an important investment objective for retired investors or those planning for retirement. Investments that pay a high and dependable income can help replace wages lost to retirement. Interest- or dividend-paying investments like stocks, bonds, mutual funds and exchange-traded funds (ETFs) can provide a steady cash flow to help pay common expenses like housing, utilities, food and health care costs.
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By owning securities that emphasize current income, investors can often avoid selling assets or dipping into savings to generate liquid cash. This means that the principal portion of a retirement portfolio can last longer and will be more likely to be available for emergencies or unanticipated future needs.
Another consideration is inflation. Unfortunately, the cost of living tends to rise as time passes. Owning investments that generate a growing income can help all investors — including those at or near retirement — keep up with inflation and maintain their purchasing power.
Real estate investment trusts, commonly called REITs, are a smart choice for income-focused investors saving for retirement. REITs are specialized companies that own income-generating real estate or interest-bearing financial instruments like mortgages or mortgage bonds that are backed by real estate. REITs are a reliable source of income because these unique securities are required by law to distribute at least 90% of their taxable income back to their shareholders.
Most REITs invest in only one class of commercial real estate which they specialize in. There are multifamily REITs that own apartment buildings and residential rental properties, retail REITs that own shopping malls, industrial REITs that own manufacturing and warehouse facilities, and several other types of specialty REITs.
Health care is one of the best REIT categories to invest in when building a retirement portfolio. Health care REITs own hospitals, medical offices, nursing homes and other properties related to the health care industry. Our aging population — especially the demographic cohort known as the baby boomer generation — promises to keep demand for medical services high for the foreseeable future, and the health care sector has proven itself very resilient in the face of recessions and economic uncertainty. Most importantly to retirement investors, health care REITs have a history of paying attractive and dependable dividend yields.
If you’re putting together a retirement portfolio and are thinking about including health care REITs, here’s a list of five high-quality REITs to buy:
| Stock | Market Capitalization | Dividend Yield |
| Healthcare Realty Trust Inc. (ticker: HR) | $6.2 billion | 7.2% |
| Sabra Health Care REIT Inc. (SBRA) | $4.2 billion | 6.7% |
| National Health Investors Inc. (NHI) | $3.7 billion | 4.4% |
| LTC Properties Inc. (LTC) | $1.6 billion | 6.4% |
| Welltower Inc. (WELL) | $76 billion | 2.2% |
Healthcare Realty Trust Inc. (HR)
HR is a $6.2 billion health care REIT that owns and operates medical outpatient buildings, better known to the public as doctors’ offices. The company was founded in 1993. At the end of its first year of operation, its portfolio consisted of just 21 facilities. Today, it has an equity interest in 673 properties all over the U.S.
Its strategy is to buy or develop medical buildings near hospitals or, if it can be arranged, on hospital property. The company is geared toward multi-tenant buildings with stable, long-term leases. HR emphasizes quality facilities and superior tenant service to bolster tenant retention and maintain consistent growth.
In 2022, HR merged with Healthcare Trust of America and is still digesting some related costs. Wall Street is looking for revenue of about $1.2 billion from the company in 2024 and also in 2025. The stock pays a forward dividend yield of 7.2%.
Sabra Health Care REIT Inc. (SBRA)
A $4.2 billion REIT, SBRA invests in an interesting variety of health care facilities in the U.S. and Canada. It owns skilled nursing facilities, rehabilitation centers, assisted living centers, senior housing communities and small specialty hospitals. Its properties are mostly leased to third-party operators on a long-term basis. In total, SBRA has an equity interest in 377 health care properties.
Revenue and earnings growth for SBRA is expected to be strong. Wall Street is looking for 2024 revenue of $687 million and is expecting that to grow 5% to $723 million for 2025. On the earnings front, analysts are looking for earnings per share (EPS) of 53 cents in 2024 and 67 cents in 2025. If those earnings are achieved, it would represent a 26% growth rate.
SBRA pays a 6.7% dividend to boot.
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National Health Investors Inc. (NHI)
NHI is a $3.5 billion REIT with a focus on long-term-care facilities, assisted living communities and senior housing medical facilities that include several memory centers for Alzheimer’s and dementia patients.
NHI is a hybrid REIT, meaning it owns properties outright and also originates and issues mortgages and other loans that it holds for its own portfolio. It acquires properties through sale and lease-back transactions. This means that it buys buildings from the tenant operators and then leases them back to them on a long-term, net lease basis. The loans it makes are mostly long-term commercial mortgages and mezzanine financing.
On Sept. 24, BofA Securities initiated coverage of NHI with a “buy” rating. The REIT is expected to generate $325 million in revenue in 2024 and $364 million in 2024, amounting to year over year revenue growth of 12%. NHI stock pays a 4.4% dividend.
LTC Properties Inc. (LTC)
The health care sector is not without challenges. The regulatory environment is very strict and exceedingly complex, and the consumer is very demanding. Despite these and other challenges, this $1.6 billion REIT has managed to thrive and grow for more than three decades.
LTC owns senior housing properties that include assisted living centers and long-term care facilities, or nursing homes. Although the company owns more than 200 facilities that are expected to generate $201 million in revenue in 2024 and $203 million in 2025, it has virtually no traditional landlord responsibilities. That’s because LTC leases its properties to professional operators on a long-term net lease basis. It’s the tenants, not LTC, who are responsible for taxes, insurance and maintenance.
The company’s tenants are generally highly experienced in both the medical and the administrative sides of the business. They are often large medical practices with dedicated real estate management teams but also include real estate investors who specialize in running medical facilities.
The stock boasts a dividend yield of 6.4%.
Welltower Inc. (WELL)
With a market capitalization of $75 billion, WELL — the final REIT on this list — is an S&P 500 component that has the distinction of being the country’s largest health care REIT by market capitalization.
This Ohio-based REIT has been around since 1974 and is one of the most respected names in health care real estate. WELL owns senior assisted living communities, post-acute care centers (also known as rehab centers), and outpatient medical office buildings.
WELL directly owns or has an interest in more than 3,000 individual properties. Most are located in North America but a significant number are in the United Kingdom.
In 2024, it’s estimated that WELL will report EPS of $1.38 on more than $7.5 billion in revenue. In 2025, the earnings figure is expected to grow 28% to $1.80 while revenue is estimated to increase by 13% to more than $8.5 billion. Welltower pays a 2.2% dividend.
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5 Best Health Care REITs for a Retirement Portfolio originally appeared on usnews.com
Update 10/09/24: This story was published at an earlier date and has been updated with new information.
