7 stocks to play the retirement housing market as baby boomers age

  • By Avi Salzman,
  • Barron's
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With the population of those 65 and over set to nearly double in the next 30 years, senior housing represents an enormous business opportunity—perhaps the largest growth opportunity in real estate.

The stocks of companies in the industry, however, aren’t growth investments. They trade like other real estate companies, heavily dependent on supply and demand trends, and vulnerable to escalating debt. Some senior-living companies either filed for bankruptcy or were forced to restructure in the financial crisis.

The industry is in better shape now, and most of the stocks offer large dividends. The largest senior-housing operator, Brookdale Senior Living (BKD), is an exception—it has been a weak investment and has had four years of losses. Most other publicly traded players, including Welltower (WELL), HCP (HCP), and Ventas (VTR), are real estate investment trusts, or REITs. All sport dividend yields higher than 4% and debt loads that look manageable.

The stocks are not quite pure plays on senior housing. All three own a mix of properties, including medical offices, so they trade based on health-care trends as much as real estate ones. That diversification arguably makes them safer, but it also leaves them vulnerable when investors fret about health care.

That said, the stocks are enticing right now for reasons beyond their dividends. They’re less vulnerable to the U.S.-China trade war than most stocks, and they benefit from low interest rates. Several of the senior-housing REITs have outperformed the market this year. The one major exception is Senior Housing Properties Trust (SNH), a Massachusetts company that cut its dividend in April after disclosing financial problems at a senior-living company that rented its properties. The stock is down 34% so far this year.

The others have held up better, despite some signs of oversupply in the senior-housing market. Occupancy was at 88.1% in the first quarter, up from its 2010 lows of 83.9% but down from 2014 highs of 91.5%, according to the National Investment Center for Seniors Housing & Care. This year’s strong performance leaves most of the REITs with valuations higher than their historical averages, meaning that they’re not screaming buys at this level. But their defensive characteristics and insulation from tariffs still makes them appealing.

For investors looking to capitalize on new trends in senior housing, Welltower’s portfolio offers growth potential, including innovative new properties in markets like New York. For dividend hunters, Ventas and small-cap CareTrust (CTRE) appear to be in particularly good shape, because they pay out as dividends a lower percentage of their funds from operations (a cash-flow-like measure for REITs) than do some others in the industry. Ventas’ yield is higher at 4.9%.

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