Bullish on Welltower? You'll Love These 3 Stocks

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Welltower (NYSE: HCN) is the largest real estate investment trust focused specifically on healthcare real estate, and I've written before about why the company should be an excellent long-term investment. However, many investors prefer to put their money into smaller, growing companies in attractive industries like healthcare real estate.

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Fortunately, there are plenty of smaller players in healthcare real estate, and here are three that look quite promising.

Company

Recent Stock Price

Dividend Yield

Physicians Realty Trust (NYSE: DOC)

$18.23

5%

Senior Housing Properties Trust (NASDAQ: SNH)

$19.38

8%

LTC Properties (NYSE: LTC)

$48.10

4.7%

A growing need for medical offices

Physicians Realty Trust specializes in medical office buildings and owns 253 properties consisting of 11.4 million square feet of leasable space.

The unique part of Physicians Realty Trust's strategy is that the company seeks to leverage its relationships with physicians and hospital systems in order to uncover attractive, off-market investment opportunities.

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Physicians Realty Trust has grown rapidly in its relatively brief history, and recently increased its 2017 acquisition guidance by $400 million. Since its 2013 IPO, the company has invested over $3 billion, and this year's total should push it well over the $4 billion mark.

Healthcare expenditures in the U.S. are expected to rise by about 73% from 2015 through 2025, and there's a longer-term trend of aging that should continue to drive growth for a long time. Specifically, the senior citizen (65 and older) population is projected to more than double over the next 45 years, and doctor visits increase significantly with older patients. As a pure-play medical office REIT, Physicians Realty Trust could be a major beneficiary of the steadily rising demand that's expected.

Senior-specific healthcare and monthly dividend checks

Senior housing could be the biggest growth area of healthcare real estate over the coming decades, and LTC Properties focuses on assisted-living and skilled nursing properties, with about 200 total properties in both of those categories.

I already mentioned that the senior citizen population in the U.S. is expected to roughly double over the next 45 years, but the oldest age groups are expected to grow even faster. In fact, the 85-and-older population is expected to roughly triple by 2050. The typical senior housing resident is in their mid-80s, so this indicates soaring demand for this type of real estate going forward.

The company has invested more than $500 million over the past two years in real estate, but with the coming boom in the elderly population, this could be just the tip of the iceberg.

For income investors, it's also worth pointing out that LTC properties pays its 4.7% dividend yield in monthly installments, not the typical quarterly payout.

A good mix of properties that should benefit from the aging population

Despite its name, Senior Housing Properties Trust is not only a senior housing REIT. In fact, senior housing makes up just over half of the company's portfolio of 434 properties, with medical offices comprising most of the rest. In other words, this REIT could be a smart way to invest in a smaller healthcare REIT that has lots of exposure to two major property types that could greatly benefit from the aging U.S. population.

As I discussed in the first section, seniors tend to visit doctors more, which should create steady demand growth for medical offices. And as I discussed with LTC Properties, senior housing also benefits from the trend, as more potential patients will translate into greater demand.

Also notice that Senior Housing Properties Trust pays a sky-high 8% dividend yield, which may sound like it's too good to be true. However, the current $1.56-per-share dividend rate translates to an FFO (funds from operations) payout ratio of just 84%, which is quite reasonable for a REIT.

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Matthew Frankel has no position in any of the stocks mentioned. The Motley Fool recommends Welltower. The Motley Fool has a disclosure policy.