We are all aware of the fact that the population is aging, as the baby boomers are now between 52 and 70 years old. Two ramifications of this are that (1) they need income-producing investments, and (2) industries that cater to this group, such as the healthcare and the long-term-care industry, will outperform.
Serving the baby boomer
Two REITS that have attractive yields and are also expected to benefit from this major theme are Chartwell Retirment Residences (TSX:CSH.UN), which owns a large portfolio of retirement homes in Canada and the U.S., and NorthWest Health Prop Real Est Inv Trust (TSX:NWH.UN), Canada’s largest non-government owner and manager of medical office buildings and healthcare real estate. History has shown us that if we invest in baby boomers, we will be handsomely rewarded as there is strength (and money) in numbers.
Chartwell REIT has a dividend yield of 3.68%, which is fully covered by funds from operations. Results from the company have been stellar, and in the latest quarter the company reported a 21% increase in funds from operations per unit. By all appearances, it looks like we can expect more distribution increases. Currently, occupancy levels are at 92.5% after many quarters of steady increases. The leverage to increases in occupancy rates is very significant.
NorthWest Healthcare Properties REIT is currently trading at a dividend yield of 8.06%, which is supported by the company’s high-quality global, diversified portfolio of healthcare real estate properties located throughout Canada, Brazil, Germany, Australia, and New Zealand.
The company’s March 2015 acquisition effectively doubled its size and gave it access to growth opportunities internationally, but it also increased its risk profile. This being said, healthcare properties generally have stable occupancies and long-term leases which make the underlying REIT attractive for long-term investors.
What happens if and when interest rates rise?
The inverse relationship between RIETs and interest rates is well known. A rise in interest rates will lead to capital depreciation, higher borrowing costs for the REITs, and lower profitability. But these two names have a big positive going for them. They are both riding the secular trend of an aging population, and that should give comfort to investors. Furthermore, since investors are buying these REITS for their income generation, they will still be presumably collecting attractive dividend payments.
The aging population is a strong force that is at work in the marketplace right now, and it will be for years to come. These two REITS are a great way to play this theme and to give investors’ portfolios a much-needed income boost.
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Fool contributor Karen Thomas has no position in any stocks mentioned. Northwest Healthcare Properties is a recommendation of Stock Advisor Canada.