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Is now the time to buy the aged care operators?

Australia is facing several difficult long-term challenges. One of the hardest to overcome in the next two or three decades is the ageing population.

There are three large aged care operators that are trading on the ASX: Japara Healthcare Ltd (ASX: JHC), Estia Health Ltd (ASX: EHE) and Regis Healthcare Ltd (ASX: REG).

There has been a lot of negativity surrounding these three due to uncertainty of funding and what they can charge residents. Since the start of 2015 the share prices of Japara, Estia and Regis are down 38%, 60% and 3.5% respectively.

However, the long-term fundamentals of the industry are still applicable. A lot of elderly will still need to be housed in aged care facilities whether this is funded by the government or the residents themselves.

Of course, that still doesn’t make them a definite buy but I think the share price declines present an opportunity for long-term investors.

Which one to buy?

My favourite of the three is Japara. It has had the most solid financials compared to its competitors in the past, although it will be worth comparing again after the reports are revealed later this month.

The thing I like most about Japara is its grossed-up dividend yield of 8.12%. Estia has currently suspended its dividend and Regis’ trailing grossed-up dividend yield is 5.93%.

Japara may be paying out 100% of its profit as a dividend but there’s a strong chance the earnings and dividend will grow over the coming years as more of its brownfield and greenfield projects are completed.

Foolish takeaway

Japara is currently trading at 17x FY16’s earnings. I think this is a good price to pay for a long-term growing stock with a big dividend.

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Motley Fool contributor Tristan Harrison owns shares of JAPARA DEF SET and Regis Healthcare Limited. The Motley Fool Australia has no position in any of the stocks mentioned. 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. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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