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1 big reason why I own Japara Healthcare Ltd shares

A fair few of the shares in my portfolio are ‘tailwind-based’. This means I think a trend will benefit a business and this will help it beat the market over the long-term.

Japara Healthcare Ltd (ASX: JHC) is one of the shares where I’m banking on the tailwind to help the most.

Japara is an aged care provider, one of the largest in the country. It owns facilities across several states and in different areas of our cities.

The main reason why I think Japara could be a long-term winner is that Australia’s population is steadily ageing. The key statistic I’m excited by is that the number of over-65s will increase by 75% over the next two decades.

This age bracket is a broad range, the older a person becomes the more likely they are to need assistance by going to an aged care facility. Typically, this usually starts happening more when someone reaches the 70 to 75 age bracket.

Not only is Japara one of the biggest aged care operators, but it also specialises in care of patients with dementia, which is a worthy activity but also is a higher earner for the company.

In FY17 Japara grew its average revenue per resident per day from $272.80 to $281.90. This helped grow Japara’s total revenue by 10.7% compared to FY16.

It’s predicted that the whole aged care industry will need to add tens of thousands of beds over the long-term to keep up with demand, which is why Japara has already projected it will add over 1,000 net new beds by FY20 with brownfield and greenfield sites.

Japara could also be a good choice for income investors because it’s currently paying out most of its profit as a dividend each year. It’s trading with a trailing grossed-up dividend yield of 7.69%.

Foolish takeaway

Japara is currently trading at 19x FY17’s earnings. The next few years could be volatile with government funding concerns but Japara will hopefully be a long-term winner.

If you want growth quicker than Japara then you should check out these hot small caps.

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Motley Fool contributor Tristan Harrison owns shares of JAPARA DEF SET. 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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