November Purchase – Ventas (VTR)

Stock Add for November (Ventas – VTR)

On 11/09, I significantly increased our holdings in Ventas (VTR).  Prior to purchase, Ventas represented about 1% NAV weight.  It now represents just over 3%.  Shares were purchased in 3 different retirement accounts at just under $50/share, providing a yield of 5.84%.  It’s current allocation weight is about where I want it to be.   

Ventas is structured as a REIT with a focus on senior housing properties, hospital/healthcare and medical office buildings.  It previously had its hands in skilled nursing facilities (SNF) as well, but spun the majority of that segment off into Care Capital (CCP).  As a result, I now have a very small holding in CCP that I have to figure out what to do with, but that’s another story I guess.

Owning Ventas is not without risk.  There is increasing pressure to contain healthcare costs which could put a crimp on growth.  However, the existing demographic trends mean that an increasing number of elderly will require specialized care/housing.  They will have to go somewhere, and Ventas will be there to lease out the facilities.  They may experience sluggish dividend growth, but in my mind that is offset by the already high current yield.

Most of Ventas’ medical office buildings are located in areas with higher income and are affiliated with hospital campuses which should provide some stability.  According to a Morningstar report, 96% of Ventas’ MOB portfolio is located directly on a hospital campus or is affiliated with a hospital campus.  Per Morningstar, “Overall, Ventas’ different property types and leasing models afford it competitive advantages, which should result in a steady stream of rental income that can grow organically at rates approximating inflation or more over time.”  That sounds good to me.

Price/Valuation

Many things can happen to a company and its stock price, but at this point I feel I bought at a reasonable price.  S&P rates Ventas a “buy” with a target price of $60.  M* rates it at 4 stars (buy) with a fair value of $81.  I’ll split the difference and call it $70, meaning that a buy at $50 seems reasonable considering the lovely dividend.

The FAST Graph charts seem to paint a picture of reasonable valuation.  The price (black line) is below earnings justified (orange) line.  Looking at historical yield (red line), the yield at time of purchase (5.8%) seems quite attractive as well.  The earnings/price estimate chart for both “normal” and estimated returns provides a low return estimate that exceeds 8%.  I can live with that, no doubt.

VTR FG 20151109

 

VTR FG1 20151109

 

VTR FG2 20151109

 

What are your thoughts?

I continue on my quest to increase personal cash flow.  The purchase of Ventas is yet another step in that direction.  Do you own this stock?  Why / why not?  Thanks for stopping by.

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5 responses

  1. No secret I have been on a health REIT kick in November. Earlier this month I have added to my HCP, HCN and VTR. The values and yields offered this month have been incredible. The health REITs still look attractive these days but slightly less so since they have bounced back quite a bit. Nice buy. Thanks for sharing.

    1. DH,
      Yes, I have noticed your accumulation of health related REIT stocks. Nobody knows what the the future will bring, but your purchases seem pretty dang logical to me. I wish I could have joined you in upping my HCP holdings, but it’s already reached the desired weight in my portfolio. I got myself in a little trouble with too much enthusiasm for oil stocks, so I’m trying to be more vigilant with portfolio weight :-).

      My goal is to give REIT stocks about 15% overall weight. It’s now around 12%. I want to fill out the remaining position with Realty Income. It’s about 2% and I’m shooting for 5%. O is a tad pricey for my tastes at the moment, so it becomes a waiting game. Patience is reportedly a virtue (though I dislike being patient). Keep up the good work. Thanks for commenting.

      Steve

  2. Purchasing just under $50/share is a great valuation for a fantastic business and the demographic tailwind behind it. Congrats on adding shares here…I have almost a full position, but will continue to add when I see weakness in the stock (although its considerably down since my original purchase prices)

    Thanks for sharing
    R2R

    1. R2R,
      I agree with you. I’ve been wrong plenty of times before, but the price and yield seemed too good to pass up. My paper gains on VTR have not been anything to write home about. I had previously made only one purchase of VTR early in 2014 at about $61, so I was down a bit. With the recent purchases, I’m currently up overall on VTR…just barely. Can’t hardly take my DW out for a nice dinner with that :-). I’m after the divvies though. Over time, we should be able to indulge in a few of those dinners.

      Glad to have you as a fellow shareholder. Thanks for commenting.

      Steve

  3. […] Add to Ventas (VTR):  On 11/09, I added to our Ventas holdings at just under $50 and a 5.84% current yield.  Ventas was taken from about 1% weight to just over 3%.  The blog entry on this purchase can be found here. […]

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