June 17, 2024

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3 High-Yield Healthcare Stocks to Boost Your Passive Income Stream

3 min read

Did you know that the average annual medical bill in America is nearly $13,000 per person? If you’re looking for companies with reliably growing cash flows, healthcare is definitely the right sector. The national health expenditure in the U.S. is expected to climb 5.4% per year through 2031.

Investors who want to boost their passive income stream with dividend-paying healthcare stocks have some interesting choices at the moment. These three healthcare stocks are real estate investment trusts (REITs), and they are currently offering yields of 6.2% or better.

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Medical Properties Trust: An 11.3% yield

Medical Properties Trust (MPW -4.15%) shares offer a huge yield right now because investors are worried it could have to slash its payout in the near term and this has driven the stock price down. The company owns 444 hospitals and related acute care facilities that are operated by 54 separate companies.

Medical Properties Trust’s cash flow is generally reliable because it gets nearly all operators to sign net leases that transfer all the variable costs of building ownership, such as maintenance and taxes, to the operator. The stock offers a huge dividend yield because one of its largest tenants, Prospect Medical, has been having trouble making rent payments and this has worried investors.¬†

But even without contributions from Prospect Medical, Medical Properties Trust expects normalized funds from operations (FFO), a proxy for earnings used to evaluate REITs, to reach $1.50 this year. This is more than enough to cover a dividend payout currently set at just $1.16 annually. Investors will want to keep an eye on FFO going forward, but for now, this stock looks like a great way to boost your passive income stream.

Physicians Realty Trust: A 6.2% yield

Physicians Realty Trust (DOC -1.28%) is another specialized REIT that just collects rent from the tenants that operate its buildings. While Medical Properties Trust owns hospitals, Physicians Realty Trust specializes in medical office buildings that operate on an outpatient basis.

This REIT prefers renting to cardiologists, oncologists, and other high-value tenants with strong referral networks. By doing so it’s been able to maintain and raise its dividend payout every year since its stock market debut in 2013.

Physicians Realty Trust weaves financial reporting obligations into its leases. With this added visibility, management can confidently boast that patient volume for its tenants grew 13% faster than the average outpatient provider from 2019 to 2022.

Interest rates that rose a bit faster than rents have pressured this REIT’s bottom line but FFO that reached $0.24 per share is sufficient to meet a dividend obligation currently set at $0.23 per share. Now that the Federal Reserve has slowed its pace of interest rate increases, the annual rent escalators built into this REIT’s long-term leases have a chance to raise profitability again.

Omega Healthcare Investors: An 8.3% yield

Omega Healthcare Investors (OHI -1.00%) is a REIT focused on skilled nursing facilities and assisted living facilities in the U.S. and U.K. The COVID-19 pandemic was especially challenging for these types of facilities but this well-run business has raised or maintained its dividend payout since 2004.

The pandemic forced some of the operators that rent Omega Healthcare’s facilities to restructure their businesses. The temporary loss of rents caused FFO in the first quarter to fall 13% year over year to $0.60 per share, which falls short of a quarterly dividend payout set at $0.67 per share.

But now that its restructured operators can begin paying rent again, Omega Healthcare has a good chance of maintaining its dividend payout in the quarters ahead. Over a longer time frame, this business will continue to benefit from an unstoppable demographic trend.

From 2010 through 2020, the U.S. population aged 65 and older grew by roughly 39% to reach 56 million. That growth rate was about five times faster than the overall population. Fewer large families mean many of these folks are likely going to spend years in the types of facilities that Omega Healthcare Investors owns, rather than living with family. Buying some shares of this high-yielder and tucking them into a diversified portfolio to hold over the long run looks like a smart move.

Cory Renauer has positions in Medical Properties Trust. The Motley Fool recommends Physicians Realty Trust. The Motley Fool has a disclosure policy.

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