Stocks climbed heading into today’s session, coming off a losing day yesterday. This morning, the move higher came as surging oil prices cooled and Treasury yields gained steam. It remains unclear what the economic impact of the ongoing Russia-Ukraine conflict will be, causing many to speculate about the Fed’s reaction ahead of the pivotal policy meeting coming next week.
With so much looming uncertainty, we thought we’d take this opportunity to discuss a crucial but often overlooked aspect of portfolio diversification. An investment not tied to traditional markets, meaning it can help bolster your portfolio when markets take a plunge. Anyone looking to shore up their precious 2021 gains amid 2022’s uncertainty will appreciate this long-term portfolio protector.
REITs add stability to a portfolio over the long term, providing diversification and lowering overall risk. Because real estate is an asset class that’s not directly tied to traditional markets, REITs can bolster your portfolio when markets take a plunge. Plus, their ability to generate capital appreciation along with dividend income makes them an ideal counterbalance to stocks.
“REITs provide investors with a useful diversification tool with a robust long-term performance that will typically reduce the volatility of a portfolio because of how much returns differ from those of the S&P 500,” says Andrew Latham, managing editor of SuperMoney.
Expansion plans could mean significant rewards for investors in healthcare REIT Healthpeak Properties (PEAK) in the years to come. PEAK currently owns 633 properties, balanced across the life sciences, senior housing, and medical office sectors. The life sciences portfolio consists of lab and office space focusing on three leading medical research markets (San Francisco, San Diego, and Boston), with properties typically located in a business park or campus settings. Medical office properties are located adjacent to hospitals and leased to hospitals or physician groups.
Healthpeak’s diversified portfolio acts as a built-in hedge when one area of the industry suffers. Senior housing properties struggled in 2021 due to pandemic effects but were offset by strength in the life sciences and medical office portfolios. The company has better-than-average liquidity to ride out further disruptions. Total liquidity is $2.6 billion, including $2.4 billion available on its $2.5 billion revolving credit facility, as well as $150 million in cash and cash equivalents and no material debt maturities before 2023.
Longer-term, this high-yield REIT should benefit from demographic trends that include aging baby boomers demanding new treatments and medical devices, increased outpatient services, and more seniors requiring daily living assistance. In addition, the company boasts a $1.2 billion development pipeline that is already 63% pre-leased.
Healthpeak cut its dividend in 2017 after spinning off its nursing home business, marking the REIT’s only dividend cut in 25 years. Since then, the company has paid a steady $1.48 annual dividend. The payout ratio rose to about 90% in 2020 because of COVID, but it has averaged a safe sub-80% over the past four years. The current 82% payout ratio is comfortable enough to suggest that PEAK’s 3.32% dividend yield isn’t going anywhere anytime soon.
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