The best dividend stocks are not just the ones that offer big payments right now. After all, big dividends are nice … but pretty meaningless if your high dividend stocks also give you very low share performance.
Similarly, what good are big dividends now if they don’t last? If a company has high dividends today but reduces or eliminates those payments in the future, that’s not the kind of stock you want to invest in.
So when looking for the best dividend stocks, investors need to focus on both the current dividend opportunities and the prospect of big payments down the road, too.
And to me, there’s no better investment for income — both now and over the long-term — than healthcare REITs.
Best Dividend Stocks — Healthcare REITs
One of my favorite long-term investing trends is the demographic shift taking place in America.
There are few sure things in life, but getting older is one of them … and as the Baby Boomer generation continues to get grayer, the demographic transformation of America will also transform many industries, particularly across health care.
A great way to play this trend is via high-yield real estate investment trusts that focus on care for the elderly. REITs, because of their special status with the IRS, must return 90% of income back to shareholders — meaning a mandate for big dividends and a big share of any profits. So as Boomers age and the businesses that support them grow, you are likely to see these stocks grow their dividends, too.
That makes these picks the best dividend stocks for the long-term.
So why buy healthare REITs now? Well, despite the rather obvious nature of this demographics trade, it has been a rough road for many stocks in the space over the last few years. Investors were steadily going “risk on” since 2011, buying high-growth technology companies and overlooking sleepy dividend payers that weren’t in a sexy business like cloud computing or 3D printing.
But in 2014, as the stock market has gotten rocky, the best dividend stocks have risen to the top. The risk-off environment and a hunger for yield amid falling Treasury rates has re-energized interest in healthcare REITs and provided a nice tailwind.
So what are the best dividend stocks in the healthcare REIT sector?
The first is Ventas (VTR). Ventas controls some 700 senior-housing facilities, 400 skilled-nursing facilities and 250 medical-office buildings across the U.S. The stock is up 20% or so this year thanks to the “risk off” environment, but even after the run-up, VTR stock yields 4.3%.
The company has increased its distributions 120% in the past 10 years, from 32.5 cents per share in 2004 to 72.5 cents today. And to support future dividend growth, Ventas is also gobbling up smaller competitors; this REIT has made eight major acquisitions over the past decade that total over $16 billion, in order to ensure future growth.
These are also high-quality purchases, with so-called “triple-net” leases that mean tenants, not Ventas, are obligated to pay for any property-related expenses like taxes, maintenance and insurance. That’s a good business to be in long term.
The second healthcare REIT I like is HCP Inc. (HCP). HCP stock is up 16% year-to-date, but still boasts a 5.2% dividend yield. The company is one of our Dependable Dividend Stocks and has raised its payouts steadily every year since 1985!
HCP leases or owns space for senior housing facilities, medical offices and even hospitals. So in addition to the aging Baby Boomer demographic creating a tailwind, the advent of Obamacare insuring more “customers” for healthcare-related businesses means that HCP is one of the best dividend stocks with a bright outlook for both now and the future.
The last stock I like is the aptly named Health Care REIT (HCN). This real estate investment trust has range of medical properties that it manages, including medical centers as well as senior housing facilities. And like Ventas, many of these locations are triple-net leases that keep HCN upkeep obligations low.
HCN stock is up 19% this year, but still boasts a roughly 5.0% dividend after the run.
If you’re looking for the best dividend stocks for 2014 and beyond, start with healthcare REITs like the ones above. Not only are these picks rising this year, they also have great long-term potential for both share price appreciation and high dividend increases down the road.
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Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. As of this writing, he did not hold a position in any of the aforementioned securities. Write him at email@example.com or follow him on Twitter via @JeffReevesIP.