This Trio Will Benefit From Aging Boomers

Reuben is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

People are living longer and longer lives. That's a medical miracle, but also a social problem. The human body becomes increasingly frail as it ages, thus requiring more and more care. Here are a few companies set to benefit from this trend.

How Old?

On June 12, Bloomberg reported that Jiroemon Kimura of Japan had died at the age of 116. According to Guinness World Records he had lived longer than any other man, ever. As a comparison, the oldest woman ever died at age 122. These are impressive examples of the long-term trend toward living longer.

There are all sorts of reasons for increasing longevity from simple things like regular bathing to more impressive medical advances, like heart transplants and effective cancer treatments. As more and more people live longer lives, however, society faces a notable challenge in providing care for its elder statesmen.

Riding the Trend

In addition to increased age, there is also a push to rework the U.S. health care system. Increasingly, that will mean reducing costs so society can afford the onslaught of the massively large baby boom generation. Part of that is going to mean keeping people out of hospitals for as long as possible, since that is among the most expensive care options.

Cardinal Health (NYSE: CAH) is poised to push into this market in a big way. The company is a middle man in the pharmacy business, distributing pharmaceuticals and medical products to more than 60,000 pharmacies, hospitals, ambulatory surgery centers, and physician offices. However, it recently acquired AssuraMed, which specializes in delivering medical products directly to customers' homes.

Cardinal recently lost a key customer, which is part of what spurred the AssuraMed acquisition. The customer defection and purchase will likely result in weak top- and bottom-line results this year and maybe next year, too. However, the company's top line has been on a pretty steady upward path for a decade with the lowest quarterly earnings during the span coming in at around $1.75 a share. The dividend, meanwhile, has been increased annually for over a decade. The around 2.6% dividend yield is a good deal.

Too Old

At some point, however, people just get too old to care for at home. That's where companies like Omega Healthcare Investors (NYSE: OHI) and Health Care REIT (NYSE: HCN) come in. These two are at opposite ends of the size spectrum, with Health Care residing at the top and Omega a much smaller player.

An Old Company

Health Care REIT is one of the oldest healthcare focused REITs. It owns around 1,000 properties in The United States, Canada, and in the United Kingdom. Although elder care remains the key driver of its business, its portfolio includes senior housing communities, skilled nursing facilities, medical office buildings, medical centers, and life science facilities.

Aggressive acquisition efforts have led top line expansion and regular dividend increases in recent years. That's led to a heady increase in the company's share price. However, with a $17 billion market cap, Health Care REIT needs increasingly large acquisitions to keep up the momentum it's seen of late. Expect growth to slow down for this industry leader. That's not a knock against the company, however it suggests that share price gains will be less important than the REIT's around 4.5% dividend yield.

Smaller, With Growth Potential

Omega Healthcare Investors owns or holds mortgages on over 450 skilled nursing facilities and assisted living facilities in 33 states. The company's portfolio is about half the size of Health Care REIT's and its market cap is just $3.6 billion.

Omega's portfolio has notable exposure to skilled nursing facilities, which makes third party payment issues a big concern. The added risk has historically left Omega at a yield discount to competitors. That said, the company has a long history of annual dividend hikes and offers an around 5.7% dividend yield. Moreover, skilled nursing facilities are the place where the oldest Americans often wind up, eventually.

The REIT's relatively small portfolio should make growth easier to come by, too. So, for more aggressive income investors, Omega might have more to offer.

A Coming Wave

The aging of the baby boomers is like watching a slow moving wave as it comes crashing ashore. Cardinal will increasingly help keep people out of medical facilities, which should keep its top and bottom lines heading higher over the long term. Health Care REIT and Omega will both benefit from providing the care people need when staying at home is no longer an option.

More conservative investors should like Health Care REIT because of its size and stability, while more aggressive types should find Omega's smaller size of interest. That said, both REITs have sold off along with the broader REIT sector, so now might be a good time for investors to watch the pair.

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Reuben Brewer has a position in Health Care REIT. The Motley Fool recommends Health Care REIT. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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