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Invest For Success by Following the Baby Boomers

By Tom Hutchinson
Monday, 19 Sep 2011 08:50 AM Current | Bio | Archive

In a highly uncertain economic environment it's difficult to predict where consumer demand, and consequently earnings and stock performance, will be strong. However, there is a method that you can employ that transcends much of the uncertainty – follow the baby boomers.

The enormous generation known as the baby boomers began after World War II when soldiers returned home and started having babies like crazy. The US census defines this generation as anyone born between Jan. 1, 1946, and Dec. 31, 1964.

It was called a boom because annual births spiked from about 2.5 million in the two prior decades to an average of about 4 million per year in the baby boom years, creating a massive population bubble 78 million people strong.

The demand of this population bubble has lead to exponential increases in demand for various consumer products; from Daniel Boone hats and hoolahoops in the 50s, to records in 60s and 70s, to homes and financial products in the 80s and 90s. In short, it has always paid off to invest in what this generation is buying. And now, they're getting old.

Older people consume far more healthcare than any other segment of the population – by far.

The first of these boomers reached the retirement age, 65 years, on Jan. 1, 2011. It is estimated that more than 10,000 boomers reached 65 on Jan. 1 and that more than 10,000 boomers on average will reach 65 each and every day for the next 19 years.

The fastest growing segment of the population is 65 and older, and the percentages of the population 65 and older as well as 75 and older are expected to grow at four times the rate of the overall population over this decade.

But, that's only part of the story. The other part is that people are living longer to boot. The US Census estimates (as of 2007) that life expectancy at age 65 is on average another 18.6 years.

Invest ahead of the stampede

There are several ways to invest in products and services that cater to the aging. One way, more that most others, seems compatible with today's market environment – one with a defensive business that pays a high dividend.

REITs pay no taxes at the corporate level provide they pay out 90 percent of profits to shareholders. This tax advantage enables them to pay sky high dividends compared to most regular corporations. There are also REITs that specialize in healthcare properties. Here's an example.

Health Care REIT (NYSE: HCN) is a real estate investment trust, and S&P 500 company, that invests specifically in healthcare real estate properties including senior-living facilities, medical office space, nursing homes, hospitals and specialty clinics. The REIT owns, as of 6/30/2011, 868 properties in 45 states.

As of 6/30, 73 percent of the properties were senior housing and skilled nursing facilities. Obviously, the rapidly growing influx of seniors will only increase demand for these properties. HCN has been growing at a strong clip to keep up, from 472 properties in 2006 to 868 properties by the midpoint of 2011. The REIT has invested another $4.2 billion in new properties and expansions in just the first six months of this year.

HCN's solid balance sheet has enabled them to actively pursue new properties on the cheap in this real estate market while many competitors have been hunkering down. These new acquisitions should enable the REIT to continue to grow earnings in the quarters and years ahead.

The company pays a sizable quarterly dividend of $0.715, which translates to a solid 5.6 percent yield at today's price. The last dividend represents the 161st consecutive quarterly dividend paid and these payments have risen every year since 2004.

HCN has delivered a solid average annual return of 12.5 percent per year for the past ten years. But, this REIT also passes the performance test for a defensive company. HCN posted a positive total return in the crisis-ridden year of 2008 while the S&P 500 plunged -37 percent. So far this year, the S&P has fallen -2 percent and HCN has returned +12 percent.

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In a highly uncertain economic environment it's difficult to predict where consumer demand, and consequently earnings and stock performance, will be strong.However, there is a method that you can employ that transcends much of the uncertainty follow the baby boomers. The...
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