Even with the threat of rising interest rates, there are long-term benefits to investing in health care REITs.
Last week, there was some noise from the Federal Reserve that they may start increasing interest rates a little sooner than most people expected. Well, that sent most health care REIT stocks tumbling, many by 4% to 5% that day. Yes, REITs have been riding high for a while, but where else can you find dependable yields in the 4.5% to 7.0% range? Is now a good time to invest in health care REITs? For a short-term investor, I would say no, because the interest rate risk is reasonably high for the remainder of the year. For long-term investors? The yield on your cost basis is only going to rise because the health care REITs almost uniformly increase their dividends once a year, and a few more frequently. So you are going to be locking in that current yield on your cost basis as a minimum, with it rising every year. So you could see your yield increase by 10 to 20 basis points a year. And, REITs rarely decrease or suspend their dividends, which is the kiss of death with investors. So if long-term yield is what you want, health care REITs deliver. Even if we are approaching a bubble.
