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This High-Yield Stock Is a Sane Choice Amid Political Silliness

By John Persinos on July 12, 2017

I watched a pundit last night on cable television declare with unwavering certainty that “Trumpcare” is dead in the Senate. It sure seems as if the deeply unpopular legislation is doomed, but then again, that’s what the chattering class said about the bill’s previous incarnation in the House — right before it beat the odds and actually passed.

The antics in Washington, DC are maddening and I wouldn’t blame you for being confused, if not angry. But I would blame you for fleeing the stock market. You may feel disgust with our supposed leaders, but I don’t want you to miss the great investment opportunities that are still out there.

That’s why in this issue, I spotlight a health sector stock that couldn’t give a fig about today’s political theater. It’s also a play on the booming real estate market.

This dual-sector investment pays a safe and high dividend and it’s also poised for robust capital appreciation. In this risky market, you’d be hard pressed to find a more appealing total return package.

Preschool on the Potomac…

The Senate is often called the world’s greatest deliberative body, but these days it more closely resembles a kindergarten.

Mark Twain perhaps put it best: “Suppose you were an idiot, and suppose you were a member of Congress. But I repeat myself.”

In my 30-plus years of observing politics as an investment analyst, I’ve never witnessed such a degree of political childishness, especially when it comes to health care reform. Several lawmakers have openly admitted to voting on sweeping health care legislation for purely partisan reasons, without bothering to even read what’s in the bill.

Readers have been asking me: health care demand is booming, but what’s a smart way to trade this volatile sector?

For starters, turn off your TV. Before I get to my recommendation, a few words about those overpaid yakkers on CNBC, Bloomberg, Fox Business, and other channels.

The late John Kenneth Galbraith, who was a giant in the field of economics and a top advisor to several U.S. presidents, had this to say about the investment advice you’ll find on your living room lobotomy box: Economists don’t forecast because they know, they forecast because they’re asked.”

Remember, financial TV exists for entertainment and for guests to peddle their agendas and wares, not to help you make better investment decisions. The problem is exacerbated by social media and the emergence of “fake news.”

Jim Pearce, chief investment strategist of our flagship publication Personal Finance, sums it up nicely:

“The stock market has always been subject to unfounded rumors and flat-out lies, but the advent of the Internet and social media has amplified the impact false stories can have on a company.

A story that once took days or weeks to circulate through the smoke-filled back rooms of Wall Street restaurants can now travel around the world in nanoseconds and be read by millions of people without being parsed for accuracy by an editor.”

The graying of America…

If you’re looking for a health care play that’s also a way to profit from real estate’s resurgence, consider Ventas (NYSE: VTR), a real estate investment trust (REIT) focused on the exploding market for senior care. The stock rarely gets media attention, which is good news for you. The investment herd hasn’t bid up its shares.

A major tailwind for Ventas is the inexorable aging of the world population, which boosts demand for its specialized senior care facilities.

Make no mistake: a market correction is coming, probably this year. In this dangerous investment climate, REITs are a superb diversification tool.

REITs put the investor in the position of being a de facto commercial landlord, without any of the burdens involved with actually leasing property. The fact is, most wealth in the United States derives from real estate, which is why this asset belongs in your portfolio. Ventas leverages not only the thriving real estate industry but health care’s growing prosperity as well.

REITs are an often-misunderstood investment class, so you should first know the basics of how they work.

An equity REIT’s primary goal is maximizing net rental income from owning and operating commercial real estate. Essentially, the REIT operates as the landlord. REITs own industrial parks, office buildings, apartment complexes, shopping centers, shopping malls, hotels, and self-storage facilities. REITs are easy to buy and sell — and they’re easy to own. They employ large staffs to take care of the daily hassles of property ownership, which never becomes your concern.

REITs don’t pay federal income tax. To earn its categorization as a REIT, the real estate company agrees to pay out at least 90% of net accounting income in the form of a shareholder dividend. Only by doing this can a real estate company obtain the coveted label of “REIT” and consequently avoid being taxed at the corporate level. That’s why REITs are among the highest-paying dividend stocks around. But you must pick the right REIT.

Persistent demand for senior care…

One of the best REITs to own today is Ventas. With a market cap of $24 billion, Ventas invests in hospitals, skilled nursing facilities, senior housing, medical office buildings, and other health care facilities.

Based in Chicago, Ventas operates in the U.S., Canada, and United Kingdom. The current dividend yield is a robust 4.59%.

Ventas’ management has been turning in solid funds from operations (FFO) growth through a series of property acquisitions. FFO is the figure used by REITs to define the cash flow from their operations; healthy and growing FFO indicates a safe and supportable dividend. In April, Ventas reported first-quarter 2017 normalized FFO of $1.03 per share, beating the consensus estimate for FFO per share of $1.02.

Ventas trades at a trailing 12-month price-to-earnings ratio (P/E) of 34.8, considerably lower than major rivals Healthcare Trust of America (NYSE: HTA) at 88.6 and Physicians Realty Trust (NYSE: DOC) at 86.5.

And yet, the average analyst expectation is for Ventas’ year-over-year earnings growth to reach 7.1% in the current quarter, 7.1% next quarter, 5.9% next year, and 6.9% over the next five years (on an annualized basis).

Ventas is scheduled to release second-quarter fiscal 2017 earnings on July 28. Wall Street expects earnings per share of 45 cents, compared to 42 cents in the same period a year ago. Income plus growth: that’s nothing to sneeze at.

Questions or comments? Send me a message: — John Persinos

A financial empire built on sand…

As I’ve just explained, Ventas is riding societal “mega-trends” that buffer it from fickle political winds. But there’s another way to profit from President Trump’s decisions and it has nothing to do with health care.

It has to do with… sand.

What happens when the president’s favorite beachfront palace, Mar-a-Lago, gets threatened by the encroaching tide? You make money.

You see, beachfront properties such as Mar-a-Lago are fighting an endless battle against the ravages of coastline erosion, an environmental problem that only gets worse with each passing year. That means certain sand-based trades are poised to make a killing.

Want to know more? Click here for our presentation.


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