Two ways to analyse shares is with quantitative and qualitative research.
Quantitative looks at various numbers like the price/earnings ratio, the balance sheet or the dividend yield. Qualitative looks at things like trends, tailwinds, management and ideas.
One of the clearest trends in the investment world is the ageing population. This brings a whole host of problems and opportunities for the government, businesses and individuals.
One opportunity could be aged care. The older people get the more likely they are to need to go to an aged care facility because they can’t live life how they want to at home.
Australia will need thousands of new beds over the next few years to keep up with all the demand. Japara alone is on track to add over 1,000 new places by 2020.
The current issue
A lot has been made of the problems with funding and who funds what. The government wants to keep a lid on the rising costs of aged care because otherwise the healthcare budget could become too expensive.
However, Japara and Regis can still succeed as long as the combined revenue from the government and the resident keeps rising over the long-term.
For example, in FY17 Japara’s revenue from the government per resident per day increased from $196.40 to $197.50 and the total revenue per resident per day increased from $272.80 to $281.90. This is still growth, even if it amounted to a figure close to inflation.
Plus, a future change of government could see more resources allocated to the aged care sector.
The potential dividend income
Japara and Regis are fortunate to be able to use some of the resident’s deposit effectively as an interest-free loan, which means there is more profit to pay out as a dividend.
Japara currently has a grossed-up dividend yield of 8.76% and Regis currently has a grossed-up dividend yield of 7.73%.
There could be more rough patches in the future but I think the market has digested the worst of the aged care news. At the current prices Japara and Regis could be market-beaters when including dividend income.
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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.