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.
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.
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.