Buy this REIT's stock to make money on the rapid aging of America's population

By Tomi Kilgore

BofA says that the number of Americans who are older than 82 will grow six times faster than the general population

The baby-boomer generation is "fast marching into retirement," and BofA Securities picked out a stock investors can buy to benefit from that trend.

Analyst Joshua Dennerlein initiated coverage of National Health Investors Inc.'s stock (NHI) with a buy rating. His $92 price target implies about 8.5% upside from current levels, and is above the record closing price of $90.79 on Feb. 21, 2020.

National Health Investors (NHI) is a self-managed real-estate investment trust, or REIT, specializing in senior housing lease investments.

Given that REITs are required to pay out at least 90% of taxable earnings to shareholders, they tend to have relatively high dividend yields.

NHI's last quarterly dividend of 90 cents a share was paid out on Aug. 2. Based on current stock prices, the annual dividend rate implies a dividend yield of 4.25%.

That compares with the yield on the Real Estate Select Sector SPDR ETF XLRE of 3.08% and the implied yield on the S&P 500 index SPX of 1.29%. The yield on the 10-year Treasury note BX:TMUBMUSD10Y was at 3.74%.

Since about 95% of NHI's ownership portfolio is made up of senior housing and skilled nursing facilities, Dennerlein said the REIT's stock represents a "low beta," or relatively lower risk way, to invest in the aging of America's population.

Boomers are widely thought to be those born between 1946 and 1964. By 2040, Dennerlein said there are expected to be 80.8 million Boomers over 65, compared with 55.8 million in 2020.

In addition, the cohort of those 82 and older is estimated to grow at a rate six times faster than that of the general population.

"NHI is poised to capture this demand and drive earnings growth," Dennerlein wrote, given its exposure to senior housing and skilled nursing facility assets.

He explained that the majority of NHI's earnings growth comes from acquisitions. And after pulling back on acquisitions during the pandemic, the company has indicated it's ready to ramp up activity.

In the company's conference call with analysts following second-quarter results released in early August, Chief Executive Eric Mendelsohn said they have "patiently" spent the past years positioning for the return to the level of acquisition growth seen before the pandemic.

"With ample dry powder and improved cost of capital and more realistic seller expectations, we expect that external investment activity will be a significant driver of cash flow growth in the foreseeable future," Mendelsohn said, according to an AlphaSense transcript.

Dennerlein said his bullish call on NHI's stock is supported by external growth opportunities. But the "primary driver of demand is the aging demographics of the U.S."

In total, NHI has partnered with 32 operating partners that manage 194 properties in 33 states. There are 106 senior-housing properties, 72 skilled nursing properties, 15 senior-housing operating assets and one hospital.

NHI's stock is little changed in afternoon trading on Tuesday. It has gained 4% so far in September to put it on track for an eighth straight monthly gain, which would be the longest such streak since the stock went public in October 1991.

Year to date, the stock has soared 51.6%, while the SPDR real estate ETF has gained 12.1% and the S&P 500 has advanced 20.1%.

-Tomi Kilgore

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09-24-24 1325ET

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