In our previous installment we set forth the case as to why REITs, with an exposure to the Florida market, will be in a increasingly friendly for investors in the years to come.
What options exist for investors looking to following such an investment strategy? Two REITs that speak directly to the theme of an aging Baby Boomer population and their desire for warmer climates are LTC Properties (LTC) and Senior Housing Properties Trust (SNH). Both companies provide exposure to independent and assisted living facilities. Both have a good deal of exposure to the Florida market, as well as the Texas, Arizona and California market. These markets, like Florida, are historical hot beds for retirement relocations.
Both of these companies provide a good deal of geographic and property type diversification. Dividends for both stocks are healthy and sizeable. Historical evaluation for both operations show a history of consistent dividend payments with increasing distributions. SNH has a higher volatility rating as measured by beta compared to LTC.
As you go forward in your research to evaluate these companies and other REITs, keep in mind the company’s use or overuse of debt. This can be done by looking at the debt to equity ratio and then looking at what is standard in the industry. Past practices of selling additional stock to finance projects can also be a potentially negative sign for investors. In addition, the dividend payout percentage can be helpful to identify possible signs of dividend sustainability or in-sustainability. We could compile a very long list of financial ratios and metrics that need to be evaluated…research is a requirement. Otherwise you should buy darts and throw them at stock labels for your selection method.
The point is that when you’re evaluating the companies listed or others, you need to have a sense of what the company is looking to accomplish and their strategy in doing so. A financial ratio held independently does not tell much of a story. Having a sense of the company as a whole is critical. In addition, knowing where the market is in terms of value is critical. While the long-term trend discussed in this entry is set to push such REITs higher in value, it would be foolish to believe any of these companies is set for perpetual increases without correction. The overall market will have a heavy hand in dictating their general direction. It does not hurt to wait for a broad market sell-off to establish an entry point.
Disclosure: No Position