Thanks to the “graying of America” trend, elder care stocks may be a great opportunity for long-term investors.
Even as life expectancy rates, especially for men, are falling in the United States (due to a variety of factors), the number of Americans aged 65 keeps rising, as the “Baby Boomer” generation (born between 1946 and 1964) completes entering this age range.
Many industries are affected (both positively and negatively) by this demographic shift, but for certain industries, like senior living facility owners/operators, skilled nursing facility owners/operators, as well as adjacent industries like healthcare staffing, this trend could mean steady demand growth, creating a tremendous tailwind for years to come.
That said, it’s not as if buying these stocks today means smooth sailing in terms of strong returns. In fact, near-term headwinds have affected the industries that stand to benefit most from the aging America trend.
However, as these headwinds ease, all while top elder care stocks in the sector (like these seven) remain reasonably priced, this works to your advantage if you’re deciding to add exposure to this trend to your portfolio.
AMN Healthcare Services (AMN)
AMN Healthcare Services (NYSE:AMN) is a leading healthcare staffing firm. The company provides healthcare workers (primarily nurses and related professions) on a temporary basis to a variety of healthcare providers, including SNFs.
AMN stock performed very well during the post-pandemic era, thanks largely to increased demand stemming from the healthcare worker shortage. This led to an 119% increase in revenue, and a sixfold increase in earnings, between 2020 and 2022. Yes, as demand for healthcare workers eases, sell-side analysts expect a sharp decline in earnings, both during this year, and in 2024.
That said, AMN recently beat on earnings. Shares already trade at a heavily-discounted 8.3 times forward earnings. Even if demand takes a breather in the near-term, the aging of America trend, coupled with the fact that the healthcare worker shortage isn’t fully resolved, supply/demand trends could soon become very favorable again for AMN.
Brookdale Senior Living (BKD)
As a provider of a multitude of services for seniors, Brookdale Senior Living (NYSE:BKD) fits very well in the “elder care stocks” category. Brookdale owns and operates independent living, assisted living, as well as SNF.
The company is also a provider of at-home care services for seniors. Irrespective of Brookdale’s high exposure to the aforementioned trend, until recently, challenges like soaring labor costs and a pandemic-driven drop in occupancy rates were what has been top of mind among investors in BKD stock.
However, things may turn a corner. Considering strong results and improving prospects, analysts at RBC last week upgraded the stock. This in turn spurred a double-digit rally for BKD. While excitement for shares may cool down soon in the short-term, long-term trends like the aging of America may give this stock additional runway in the years ahead.
Ensign Group (ENSG)
As a leading owner/operator of SNFs, Ensign Group (NASDAQ:ENSG) stands to benefit greatly from the increasing demand for senior healthcare services. However, there’s something else that makes this elder care stock worthy of a buy.
Ensign has also been successful in implementing a roll-up acquisition strategy, buying and improving the profitability of SNFs. This has been key in the company’s steady earnings growth. This has in turn resulted in strong gains for ENSG stock (up more than tenfold over the past decade), as well as enabled shares to sustain a forward multiple in the low-20s.
Yes, as one Seeking Alpha commentator argued back in October, some signs suggest that growth could start to slow down. Yet with demographic trends on its side, Ensign clearly not slowing down with its roll-up strategy (as seen from recent press releases), it may be soon to jump to this conclusion.
LTC Properties (LTC)
Are you bullish on elder care stocks, but focused more on dividends/income than on capital growth? LTC Properties (NYSE:LTC) may be a great choice for your portfolio. You may already be familiar with this elder care-focused real estate investment trust.
Mostly, for its status as one of the monthly dividend stocks. You may also be aware of the occupancy issues with its tenants that have hurt profitability since the onset of Covid-19. Still, LTC’s funds from operations keeps climbing back to pre-outbreak levels.
This points to LTC stock maintaining its current 19 cent per share monthly payout, which gives the REIT a forward annual yield of 6.97%. Although LTC has not increased its payout rate since 2016, a rise in occupancy driven by elder care demand trends may enable LTC to resume raising its rate of payout.
National Healthcare (NHC)
Like ENSG, National Healthcare (NYSEAMERICAN:NHC) is a SNF operator. However, unlike ENSG, NHC is admittedly not much of a growth stock. In fact, spiking labor costs, and inadequate Medicaid reimbursement rates, have led to weak revenue growth, and have negatively affected profitability.
So then, why do I consider NHC stock one of the stocks to buy for the aging America trend? Much like some of the other elder care names discussed beforehand, there have been challenges in recent years, but these challenges may be in the rearview mirror.
At least, that’s the main takeaway from NHC’s latest quarterly results. The rise in labor costs is easing, and reimbursement rates are increasing to a greater extent this year than in the prior year. This points to stronger results ahead, and explains why NHC, in a slump from late 2022 to mid-2023, has experienced a sharp rally in recent weeks.
National Health Investors (NHI)
If you decide to go bullish on NHC, National Health Investors (NYSE:NHI) is another of the elder care stocks you may want to make a buy-and-hold in as well. NHI is an elder care REIT, spun off from National Healthcare decades ago.
NHI stock may have this historical connection with NHC stock, yet it’s not as if National Healthcare is not this REIT’s primary tenant. In fact, leases to NHC made up just 12% of NHI’s overall rental revenue during the nine months ended Sep. 30, 2023.
However, NHI’s ties with NHC, as well as with other key tenants, may bode well when it comes to future growth, again thanks to the elder care trend. NHI sports a 6.71% dividend yield. While the rate of payout has declined in recent years, changes are resumed growth would lead to payouts rising over time as well.
Omega Healthcare Investors (OHI)
Omega Healthcare Investors (NYSE:OHI) is one of the highest-yielding names with exposure to the elder care growth trend. Shares in this healthcare REIT, which owns and leases out skilled nursing and assisted living facilities in the U.S. and U.K., currently have a forward dividend yield of 8.48%.
Like its peers, dividend growth has been weak for OHI stock. The last increase to its quarterly payouts was back in 2019. Nevertheless, with Omega’s latest quarterly results (which beat expectations) showing that FFO is holding steady, this REIT’s current rate of payout appears sustainable. There may not be reason for concern that a cut is forthcoming.
Moreover, the positive demand trends for elder care suggest that not only will the current dividend remain stable, but it will also potentially increase over time. Make sure to include OHI on your watchlist for its high yield and growth potential.
On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
