Ready for Retirement: 3 Health Care REITs That Outperform

NEW YORK (TheStreet) -- When it comes to retirement and savings, REITs are well positioned to play an important role -- both as an investment to help build a retirement portfolio and also to provide income to meet living expenses. It's important to remember that REITs are forced, by law, to payout at least 90% of their taxable income to their shareholders in dividends -- a crucial differentiation that makes the income highly sustainable, in good times and bad.

Another key differentiator is that REITs are low to moderately correlated with non-REIT stocks and bonds; conversely, over the long term, REITs help to reduce overall portfolio volatility and cushion the "zigs and zags" caused by Mr. Market, prior to and during the retirement years. Also, REITs are a proven and effective hedge that can help shield portfolios against inflation. As you know, rising inflation can sap the sweetness out of a retirement portfolio faster than my daughter can spend $300 at Forever 21. (Sorry Lauren, but you know it's true).

Speaking of inflation, I really like the Health Care REITs. The growing sector -- fueled by The Affordable Care Act and the expected increase in utilization of health services -- will continue to be a durable and defensive REIT class. It's a fact that people don't tend to change their health care spending patterns, regardless of economic conditions. The demand for patience is expected to rise considerably as an additional 35 million to 45 million insured patients make their way into the buildings occupied by the health care operators. That trend will bring meaningful exposure to hospitals, medical office buildings, lab space and assisted living facilities.

Health Care Outperforms

Over that last year, the Health Care REITs have outperformed all of the other REIT sectors. The prized performer -- the Health Care REITs -- returned a whopping 25.89% year over year, while the silver medal went to the Shopping Center sector (23.91%) and the bronze medal went to the Industrial sector (23.81%). The runner-up finalists were Malls (20.44%) and Self-Storage (19.54%). The S&P 500 trailed, with a year-over-year return of 15.74%.

The Health Care REIT Report Cards are looking good and I especially like these three REITs that have outperformed the others (over the last 30 days). It doesn't hurt the fact that as I recommend all of these REITs, the shares are continuing to build a dominate total-return record.

Let's start with Medical Property Trust ( MPW), a "pure play" hospital landlord that I recommended here.

The Birmingham-based REIT has returned more than 11.5% during the past 30 days.

That's not bad. But hang on.

MPW, with a market cap of $1.942 billion, has returned more than 58.5% over the last 12 months. Shares are trading at $14.25 and the BB (S&P rated) REIT has a dividend yield of 5.61%.

The big monthly gainer is Omega Healthcare Investors ( OHI). The long-term care REIT returned more than 13.74% in the last 30 days and a boastful 38.91% over the last 12 months. With a market cap of $3.119 billion, OHI has a modest valuation (P/FFO is 14.5) with shares trading at $27.75. Just a shade under investment grade (SP is BB+), OHI has the highest dividend yield in the sector, at 6.49%.

Finally, the "new kid" just made it on the leader board. Health Care Trust of America ( HTA), a pure-play medical office building REIT, has returned more than 10.68% in the last 30 days. The Scottsdale-based REIT listed on the NYSE on June 6, 2012. Last week the company hit an all-time high of $11.68 per share. In just six months (since listing), HTA has retuned more than 26% and the company now has more analysts covering it (and more to follow).

No more flying under the radar for HTA, as the $2.422 billion REIT pays a healthy dividend yield of 5.09%. (HTA is the only investment grade REIT of the three mentioned in this article. S&P rates HTA BBB-).

The above Health Care REITs are excellent candidates for your "sleep well at night" portfolio. In fact, I strongly recommend these three REITs by diversifying and even spreading your risk across tenant, property type and geography. To be properly diversified, I would not recommend that you limit your exposure to one, but instead me mindful that there are a broad number of REITs (129 U.S. equity REITs) with a full spectrum of disciplines. It is essential that diversification become a part of your DNA and perhaps any or all of these three Health Care REITs could be a part of your overall retirement portfolio.

Best of luck.
The Intelligent REIT Investor.

Source for Data: SNL Financial

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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