Two REITs Set to Make Big Profits Off Retirement Boom Ahead

Making money in the stock market is about taking advantage of opportunities. While most opportunities are short-lived, others have a much longer horizon. The American baby boomer generation is entering retirement at an unprecedented rate. This opens up opportunities for the next 20 years for investors looking to profit on sectors that will benefit from aging baby boomers.

The births of the American baby boomers started in 1946 and ended in 1964, during which time 77 million people were born. On January 1, 2011, the first of the baby boomers began celebrating their 65th birthdays; over the next 16 years, roughly 10,000 Americans will turn 65 every single day.

That represents an enormous demographic. How large? For the first time ever, the senior age group now makes up the largest part of the U.S. in terms of size and percentage, accounting for approximately 35% of the population. By 2030, the number of Americans aged 65 and up will double to about 71.5 million, and by 2050, that number will grow by more than 20% to 86.7 million. Baby boomers also have deep pockets, accounting for 40% of total consumer demand. (Source: “Resources 50+ Fact & Fiction,” Immersion Active, last accessed May 31, 2013.)

Even with all that money and time on their hands, North American baby boomers will still need somewhere to live—and somewhere to visit their healthcare providers.

A real estate investment trust (REIT) is a company that owns and operates income-producing real estate. A REIT is a great way for individual investors to take advantage of the developing real estate trends without having to actually own real estate.

Income-starved investors tend to favor REITs because they have to (legally) pay out virtually all of their taxable income to shareholders. So long as the real estate market that the company is investing in does well, these cash cows pay out reliable, high-yield dividend rates that significantly (on average) outstrip the Street.

However, not all REITs are created equal. Some invest in apartments, retail property, hotel, rental homes, and so on. One of the hottest areas going forward could be health care REITs that own hospitals, nursing facilities, medical offices, and retirement homes.

At the same time, not all health care REITs are the same, either. Some are more content with their current property holdings and prefer making upgrades. Others want to break ground on new developments.

Recent data show that senior housing occupancy was flat year-over-year at 89.1% during the first quarter, but was up 80 basis points from a year ago. New construction activity and annual asking rent growth increased 90 basis points. (Source: “Senior Housing Construction Activity Gets 1Q Nudge, Occupancy Flat,” Senior Housing News, May 14, 2013, last accessed May 31, 2013.)

The first of two great REITs to considering taking a look at, HCP, Inc. (NYSE/HCP) invests in properties serving the health care industry, including sectors of health care, such as senior housing, life science, medical offices, hospitals, and skilled nursing facilities. The company provides an annual dividend of 4.1%, which it has raised for the past 28 consecutive years.

The second REIT to own, Medical Properties Trust Inc. (NYSE/MPW) owns around 50 health care facilities, including acute care, physical rehabilitation, and regional and community hospitals in more than 20 states. It also provides financing to acute care facilities that want to expand or acquire other facilities. The company also pays out an annual dividend of 4.9%.

Thanks to an aging baby boomer population, health care REITs, in general, are probably best suited for risk-averse, buy-and-hold investors looking for solid dividend returns and price appreciation.

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