Summary
- Reason #1: The current bear market was expected.
- Reason #2: Very safe 5.4% yield + industry-leading management + demographic tailwinds in the 2020s = likely long-term success.
- Reason #3:Valuation is now reasonable, creating double-digit long-term return potential.
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This article was coproduced with Dividend Sensei and edited by Brad Thomas.
As value investors it's our job to both point out when a top-quality dividend stock is a reasonable to great buy, but also when Super SWANs like Ventas Inc. (VTR) are overvalued and thus a "hold" until they return to fair value or better.
On July 8 we published an article explaining why we're bullish on this 11/11 quality Super SWAN REIT, but it was overvalued, lacking a margin of safety, and priced as if nothing could go wrong with its long-term growth plans.
Ventas Total Returns Since Our Last Article
(Source: Ycharts)
We're not market timers, nor do we have a crystal ball. We are simply fundamental and valuation-focused investors who know market history and that overvalued companies always become fairly or undervalued in the future.
Ventas has now fallen 21% from its 52-week high of $75.4 when it was grossly overvalued. However, this 5.4% yielding REIT is now back to reasonable levels. That means it has the potential to deliver its historical returns in the future.
Ventas Total Return Since 1998
(Source: Portfolio Visualizer) portfolio 1 = VTR
Ventas is a proven market beater, which is true of all 48 Super SWANs on the Dividend Kings 265 company Master List.
Despite a ghastly 79% plunge from 1998 to 2000 (during the Medicare/Medicaid regulatory shift-induced healthcare "apocalypse") Ventas has managed to nearly double the market's historical returns over the last 21 years.
It did that with 75% lower long-term volatility, making it one of the most stable high-yield income sources on Wall Street. That's likely why the stock got into such a bubble when low rates and rising recession risk caused "low rate = bond alternative" yield chasers to foolishly overpay for this modestly-growing REIT.
So let's take a look at the three reasons we're initiating a starter position in Ventas, despite the recent earnings miss induced bear market.
In fact, learn why, from today's "good buy" valuation, Ventas is likely to deliver 10% to 11% CAGR total returns, significantly outperform the S&P 500, and represents a reasonable and prudent source of generous, safe and steadily growing income in all economic and market environments.
Photo Source
Reason 1: The Current Bear Market Was Expected
(Source: F.A.S.T Graphs, FactSet Research)
Margin of safety is essential to avoiding unnecessary risks (see risk section) because companies don't succeed because nothing goes wrong, but despite something always, inevitably going wrong.
For Ventas that something was a disappointing earnings report in which its SHOP segment saw 5% SS NOI declines.
...Originally Posted On Seeking Alpha
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