Earlier this month, my colleague Adam O’Dell recommended a fantastic way to profit off of the bull market in genomics and biotech without having to accept the risk of separating the winners and losers: Buy a real estate investment trust (REIT) that acts as a landlord to biotech labs.
I agree with Adam that spending on life sciences will only rise from here. This may be the biggest investment theme of our lifetimes. But I also know that there will be a lot of volatility along the way. It’s important to keep at least a portion of our portfolios in something a little more staid and steady.
That brings me to this week’s dividend stock of the week, Healthcare Trust of America Inc. (NYSE: HTA).
A Healthy Trend for One Health Care REIT
The story here is easy to understand. America is aging. Approximately 10,000 baby boomers turn 65 years old with every passing day. And the older we get, the more healthcare we need.
I’m only 44, and I’m already falling apart. It seems I’m always in the doctor’s office for something. Bum knee … bum shoulder … high cholesterol … lower back pain…
The list gets longer every year. I don’t want to even think about my 60s or 70s. God willing, I will have quietly passed of a heart attack after a large steak dinner by then.
But I digress. Back to HTA…
Healthcare Trust is a health care REIT that owns a diversified portfolio of medical office buildings, which is the safest and most stable way I know to play the rise in health spending.
Medicare can change its reimbursement policies tomorrow, impacting the profitability of any medical practice. But even if a doctor gets squeezed by an unfavorable move, they won’t quit paying their rent. The office rent is the single most important monthly expense.
You can cut staff and run on a skeleton crew, but you can’t run a medical practice out of your living room. You have to have an office. (Yes, telehealth became popular during the pandemic, but it was a stopgap at best. There is no substitute for a face-to-face meeting with your doctor.)
Healthcare Trust: Good Dividend, Great Growth Prospects
At current prices, HTA yields a respectable 4.2%. In a world in which the 10-year Treasury yields 1.3%, that’s not too shabby.
Healthcare Trust of America rates a “Neutral” 47 on our Green Zone Ratings system. But digging into the numbers, we get a more complete picture.
Growth — HTA rates a very healthy 83 on our growth metric. That’s remarkable when you consider how utterly boring its business model is. It acquires medical office buildings and then rents them out to doctors. That’s it. Rinse and repeat. But that’s also what makes the REIT so appealing. There is a deep pool of real estate in this sector to choose from, and HTA has a nice growth trajectory in front of it.
Volatility — The REIT also rates well on our volatility score at 81. This means that, by our metric, the REIT is less volatile than all but 19% of the stocks in our universe. So, we’re getting a high-growth company without the stomach ulcer that often comes with high-growth companies.
Momentum — HTA’s momentum is very much in the middle of the pack at 45. That’s OK. HTA is essentially keeping pace with the S&P 500. That’s fine. We don’t need tech-stock momentum in an income stock like this.
Value — HTA’s value score is somewhat uninspiring at 42, but it’s important to remember that REITs often score low on our value factor. Because of accounting quirks specific to REITs, they tend to have low reported earnings, which makes them appear expensive in metrics like the price-to-earnings ratio. Still, a rating of 42 here is neutral. HTA is neither cheap nor expensive.
Quality — Our quality factor rewards capital-lite businesses that generate strong margins. Well, REITs are capital-heavy and tend to have low reported earnings due to the accounting quirks I mentioned. So, it’s not surprising that Healthcare Trust rates only a 33 here.
Size — HTA is a larger REIT with a market cap (number of outstanding shares times share price) of nearly $7 billion. So, it rates a modest 19 on our size factor.
Bottom line: Healthcare Trust isn’t the highest-rated REIT on our Green Zone Ratings system. But it scores well in growth and volatility and pays a nice 4.2% yield … all while benefiting from fantastic long-term demographic trends. This is a health care REIT with a promising future.
To safe profits,
Co-Editor, Green Zone Fortunes
Charles Sizemore is the co-editor of Green Zone Fortunes and specializes in income and retirement topics. He is also a frequent guest on CNBC, Bloomberg and Fox Business.