Angling for Some Ample REIT Yields

But even if the acquisition results in some near-term dilution, the Hearthstone portfolio is viewed as attractive. Assisted-living facilities are the cream of the crop in the health care sector, since the rents are paid from patients' pockets and don't rely on government Medicare reimbursements.

All in all, Nationwide is priced right for income-oriented investors. Its price-to-forward FFO multiple is 11.3, the lowest among its major competitors. The REIT's expected 2006 FFO growth rate is 3.3%. This is lower than the 9.7% growth expected from Senior Housing Properties (SNH) and the 8.3% growth anticipated from Healthcare Realty (HR). Both of these companies also have dividend yields above 7%.

However, Nationwide's diverse tenant base makes it a less risky play than Senior Housing Properties, which derives over 62% of its rental revenue from a single health care operator. As well, on a price-to-FFO-multiple basis, Nationwide trades at 11.3, compared with 15.1 at Healthcare Realty.

Don't expect much capital appreciation from either Spirit Finance or Nationwide Health, but the high dividend yields make them suitable investments for income-oriented investors. Both dividends look well covered for now. Spirit Finance has an estimated 2006 FFO payout ratio of 88% and Nationwide has an 80% ratio. Because the FFO payout ratios are below 100%, that means both companies are covering their dividends using cash from operations.

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