Time To Buy Health Care REITs?

July 7, 2009

July 7, 2009
With several of the health care REITs yielding more than 8.0% for a few months, we thought that represented a pretty good buy in the market. Now we have some facts to back up our gut feeling.

Rob Mains of Morgan Keegan just came out with ratings increases for Ventas, Health Care REIT, HCP, Inc. and Nationwide Health Properties, increasing them from "market perform" to "market outperform." Why? the main (no pun intended) reason, it appears, is that the dividend yield spread between health care REITs and equity REITs overall now exceeds 250 basis points. Historically, whenever this happens, health care REITs outperform other equity REITs in the market. This is the fourth time this has happened this decade, and the three other times, health care REITs outperformed equity REITs in general by an average of about two to one for both the following six- and 12-month periods. If the current high yields were not a good enough reason to invest today, this yield spread analysis by Mr. Mains could be the clincher.

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