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Morningstar.com published an interesting piece in July about the long-term health care crisis. It pointed out that Americans paid out $245 billion for long term care to paid caregivers, nursing homes and other forms of paid assistance. That got me thinking about long-term care stocks.
There are businesses providing this care both in the home and at nursing homes across the country. The really good operators make money despite the thin margins.
If you are far from needing long-term investing time, consider making some investments in long-term care stocks to generate some capital gains down the road to help pay for this care.
As I said, there are stocks to buy to benefit from the ongoing need for long-term care in this country. Here are three that are excellent stocks to own for the long haul.
Welltower (WELL)
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Welltower (NYSE:WELL) is a real estate investment trust, or REIT, that provides real estate capital to seniors housing operators, post-acute care providers and health systems in the the U.S., Canada and the United Kingdom.
In 2023, it generated 85% of its net operating income in various regions in the U.S., followed by 9% in the U.K. and 6% in Canada. Seniors housing accounted for 42% of its NOI, followed by triple-net facilities — tenant pays all operating costs — at 38%, and outpatient medical facilities at 20%.
At the end of July, it provided investors with a business update. It highlighted that one of the main themes of the next 10 years or more will be the aging of the population and the impact REITs will have on the health care sector.
For 2024, Welltower expects its occupancy to increase occupancy rate increase by 290 basis points. In the three months ended June 30, its occupancy rate was 82.8%, 320 basis points higher than a year earlier. It was up 30 basis points from the end of March. Its same-store NOI for its seniors housing grew 21.7% in the second quarter.
Since the beginning of 2024, it has either closed on or agreed to $4.9 billion in acquisitions and loan funding.
It has a healthy dividend yield of 2.32%. Its shares are up over 28% year-to-date.
Chemed (CHE)
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Chemed (NYSE:CHE) is the second-largest of the three long-term care stocks with a market capitalization of $8.69 billion.
In February, I wrote about the company being a top pick of Durable Capital Partners Chief Investment Officer Henry Ellenbogen. As I said at the time, I’m always attracted to companies that are different.
You can’t get much different than Chemed, which gemerates 60% of its revenue from Vitas, one of the leading hospice care providers in the U.S.
While it’s not a long-term care provider per se, it is on the aging continuum, which is why I’ve selected it. The remaining 40% is from Roto-Rooter, provider of plumbing, drain cleaning and water cleanup services.
Together, the two businesses generated $596 million in second-quarter revenue and a 34.1% increase in adjusted earnings per share of $5.47.
The Vitas segment’s EBITDA, or earnings before interest, taxes, depreciation and amortization, was 17.8%, 613 basis points higher than a year earlier. Roto-Rooter’s, despite falling 126 basis points YOY, was still healthy at 27.0%.
Chemed is an interesting combination of businesses, but it works.
The Pennant Group (PNTG)
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The Pennant Group (NASDAQ:PNTG) is the smallest of the three with a market cap of $861 million. Its shares are up a whopping 101% in 2024.
Pennant provides home health and hospice care through a decentralized business model where each affiliate has its own management team. The company operates a centralized service center to provide these affiliates with the professional resources they need to be successful.
This allows on-site leaders and caregivers to focus on day-to-day care and business issues in their individual community.
In addition to the home health and hospice care, it also owns and operates 53 senior living communities across 13 states. It’s grown revenue by 22% compounded annually over the past decade. With just 35% of home health and hospice agencies and senior living communities owned by large operators, it has an opportunity to be an industry consolidator.
It generates revenue from its Home Health and Hospite segment and 26% from its Senior Living segment. Most of its operations are in the western half of the U.S.
It should be a prime beneficiary of an aging population.
On the date of publication, Will Ashworth did not have (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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