The Canadian and US stock markets have the same mix of industry sectors but differ in equity weights by sector. One glaring difference is healthcare. In the US S&P 500 Index, it is the third-largest sector (12.6%) after information technology (28.9%) and financials (13%).
In the S&P/TSX Composite Index, healthcare (0.3%) is the smallest among the 11 primary sectors, while financials (31.3%) and energy (17.1%) are the heavyweights. The healthcare sector seldom outperforms, although, in 2024, individual components beat the broader market.
This May, best in the lot are Vitalhub (TSX: VHI) and Medical Facilities Corp. (TSX: DR). If you’re after monthly passive income and don’t expect much on price appreciation, high-yield NorthWest Healthcare Properties (TSX:NWH.UN) is the logical choice.
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Digital transformation
Vitalhub is obscure, but the healthcare stock is flying high. At $6.63 per share, current investors enjoy a 62.5% year-to-date gain. The trailing one-year price return is 142.9%. Had you invested $6,500 a year ago, your money would be worth $15,785.71 today.
The $336 million company provides software dedicated to health and human services providers. Its primary purpose is to improve care delivery by developing an ecosystem of harmonious solutions for these sectors. Given the Q1 2024 financial results, its CEO, Dan Matlow, said VitalHub is well-positioned to continue its growth trajectory.
In the three months ended March 31, 2024, revenue and annual recurring revenue (ARR) increased 21% to $15.3 million and $47.8 million, respectively. Notably, EBITDA rose 56% to $3.1 million, while net income soared 713% year over year to $1.3 million.
“Our strong financial position supports our ambitious growth plans and our commitment to leading the digital transformation in healthcare,” added Matlow.
Unique business model
Prospective investors can earn two ways from Medical Facilities: capital gains and dividends. At $11.80 per share, the healthcare stock is up 32.4% year to date and pays a decent 2.83% dividend. This $288.8 million market cap company owns or has controlling interests in specialty surgical hospitals in Arkansas, Oklahoma, and South Dakota, as well as an ambulatory surgery centre in California.
The business model is unique in that physicians have direct involvement in operations through established partnerships. Medical Facilities’ competitive advantages are their high-quality surgical facilities, the ever-increasing demand for health care, and the growing but fragmented outpatient services market.
In Q1 2024, facility service revenue and income from operations rose 4.5% and 29.6% year over year respectively to $108.3 million and $17.5 million. Because of the strong cash flows, the company reduced debt by $5 million, and the Board approved an 11.8% dividend hike.
Only REIT in the cure sector
NorthWest Healthcare trades at $5.33 per share (+6% year-to-date) and pays a hefty 7.05% dividend. A $7,000 investment today would transform into a recurring monthly passive income of $41.12. The investment pitch for this healthcare-related real estate stock is simple.
This $1.3 billion real estate investment trust (REIT) is the only REIT in the cure sector. NorthWest Healthcare owns and operates healthcare real estate infrastructure. The medical office buildings, hospitals, and clinics are in North America, Brazil, Europe, and Australasia. Besides stable occupancies, the leases are long-term.
Strong fundamentals
Vitalhub, Medical Facilities, and NorthWest Healthcare Properties boast strong fundamentals. The choice depends on your investment objectives: capital gains, dividend income, or both.
