A new purchase and a new addition to my portfolio! Over the last few weeks, I have been re-evaluating my overall portfolio to see where I can tweak things to shed positions that do not make sense for my investing needs anymore, and re-allocating those funds where good opportunities exist. While the overall market is at lofty levels, it is important to remember that it is market of stocks and not a stock market. Yes, the indexes point to the fact that the overall market (measured according to these indexes – which simply includes the valuation of the index components) are stretched, but some companies have already gone close to correction or attained technical correction territory (fallen atleast 10% from the peaks). So, looking at these pockets of opportunity, I have decided to initiate a new position.
With the turmoils in the bond market and the US Fed on the verge of raising interest rates, the bond-substitute sectors such as REITs and Utilities have undergone significant correction. One subsector of the economy that I am bullish on and has fantastic prospects for the future is the healthcare REIT sector. I have been evaluating the largest companies in this space over the course of last month and sharing the articles – links provided at the end of the article in the Further Reading section.
I have initiate a new position in Ventas Inc (VTR) with 25 shares @ $65.17. The company yields 4.86% adding $79 to my annual dividend income.
From Yahoo! Finance
Ventas, Inc. is a publicly owned real estate investment trust. The firm engages in investment, management, financing, and leasing of properties in the healthcare industry. It invests in the real estate markets of the United States and Canada. The firm primarily invests in healthcare-related facilities including hospitals, skilled nursing facilities, senior housing facilities, medical office buildings, and other healthcare related facilities. Ventas, Inc. was founded in 1983 and is based in Chicago, Illinois with additional offices in Irvine, California; Louisville, Kentucky; Charlotte, North Carolina; and Dallas, Texas.
Recent Buy Decision
- The second largest healthcare REIT company by market cap at $21.5B. My only exposure in the space was in Omega Healthcare (OHI) which is focused only on the Skilled Nursing Facilities (SNF). With Ventas, I get exposure to the whole gamut including hospitals, SNFs, senior housing, medical offices etc.
- A spin off has been announced that will create a new company – Care Capital Properties focusing on the SNFs. This is expected to complete in second half of 2015. Shareholders of Ventas will be awarded 1 share in new company for every 4 shares of VTR. With this transaction – I will be rewarded 6 shares in the new company after spinoff.
- The stock is attractively valued and is down 9.5% YTD due to the interest rate jitters
- Current yield of 4.86%
- Ventas is a Dividend Challenger, having grown dividends for 5 consecutive years. The 1-, 3-, 5-, and 10-year dividend growth rates are 8.4%, 8.8%, 7.7%, and 8.6%. The dividend growth rates are second only to OHI.
- Post spinoff, the combined dividends from the two companies is expected to be 10% higher than the current $3.16.
- Cash flow and FFOs have grown handsomely over the years. Following charts provide more detail.
- My Dividend Stock Analysis on Ventas Inc outlines all the reasons to own this fantastic company. Be sure to check it out.
I see three main risks: competition, interest rate moves and changes in payment plans from Medicaid/Medicare.
- Overall, Ventas faces competition from giants such as HCN, HCP, and more intense competition on the SNF front from OHI. However, the market is still very fragmented, and each of these still has plenty of room to grow.
- Interest rate moves can provide with some short-term volatility. However, this is something most investors cannot control and will simply have to live with the volatility when it occurs and use the opportunity to initiate and add to position.
- Legislative changes to Medicaid and Medicare are always possible, which could provide some headwinds.
Summary of Ventas Inc
- Symbol: VTR
- Quote: $65.19
- 52-week range: $60.63 – $81.93
- P/FFO: 14.2
- Yield: 4.86%
- 5-yr DGR: 7.7%
- Ventas Inc NAREIT REITWeek Presentation
- Ventas Inc – 2014 Annual Report
- Dividend Stock Analysis
- 4 Healthcare REITs For A Healthier Retirement Portfolio
- See my list of other recent purchases
Full Disclosure: Long OHI, VTR. My full list of holdings is available here.