National Health Investors (NYSE:NHI)

Selected as a play on the aging baby boomers.

In 2014, the latest year for which data is available, 46.2 million people (or 14.5% of the population) were age 65 or older in the United States. Census estimates are that by 2040, those 65 or older are expected to comprise 21.7% of the population.

As a self-managed Real Estate Investment Trust (REIT) in the long-term health care industry, National Health Investors pays out most of its profits as dividends to shareholders. Current dividend is $0.95/quarter and that has been fully covered by profits. Funding for expansion comes from the less than 10% of profits that it retains, new debt, and increasing the number of common shares outstanding. About 15% of their current debt, which is in a revolving credit facility, is exposed to variable interest rate risk. They own 207 health care real estate properties located in 32 states, consisting of 134 senior housing communities, 68 skilled nursing facilities, 3 hospitals and 2 medical office buildings. Their senior housing communities include assisted living facilities, senior living campuses, independent living facilities, and entrance-fee communities. They lease all of these properties to facility operators, and also provide construction and mezzanine loans to these operators to conduct expansions and/or for acquisitions for their own account.

Other than the rising interest rates effect on their credit facility, on future debt, and on the relative attractiveness of their dividend, other possible risks are: tenants going bankrupt, cuts in Medicare and Medicaid affecting their tenants in the skilled nursing facilities, and/or another disruption of the debt and real estate markets.

After many years of strong revenue and profit growth, the last 1-1/2 years have seen fairly flat results, though dividends have continued to increase. Hopefully, this pick will avoid serious problems with the risks listed above, and will be more resilient than others in an eventual market correction.