Monthly Archives: May 2016

Medicare Cover You for Illnesses

Retirees love to travel. Just about all say that travel is high on their to-do lists. Word of advice: don’t set foot out of the country unless you know how you will deal with illness or injury outside U.S. borders.

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That’s because Medicare generally does not cover care overseas for illnesses and only a handful of plans offer partial coverage for emergencies. “Medicare covers nothing outside of the U.S. and U.S. territories, like Guam, Puerto Rico, etc.,” said Christopher Grimmond, a Medicare specialist with Omaha Insurance Solutions. “That’s it. End of story.”  He noted that there are some narrow exceptions – more on them momentarily – but for the most part basic Medicare covers zip and even the Medigap plans, intended to fill coverage holes, can’t be counted on by foreign travelers.

With AARP, for instance, none of the Medicare Supplement plans it sells cover treatment overseas for illnesses. About half the plans do cover foreign emergency care – but only up to 80%. Have a heart attack in London, and you could be whacked for maybe $10,000 (roughly 20% of the typical $50,000 for treating a simple heart attack). There’s also a $250 deductible.

Maybe you won’t be charged a penny – the British National Health is widely said to be lax about dunning U.S. travelers. But maybe you will be billed and what then? Similar is said about many European Union countries. They often do not bill for medical services rendered to U.S. travelers. But they could.

Hospitals in some countries – travelers fingered India and Russia as cases in point – insist on cash on the barrelhead before providing care.

What about those exceptions where Medicare will pick up foreign bills? Grimmond said that in cases where an emergency room is closer in Canada or Mexico than in the U.S., basic Medicare may cover the costs.

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Basic Medicare also will – sometimes – cover care rendered on a cruise ship. Said lawyer Yulian Shtern with Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara & Wolf in New York: “Medicare will pay for medically necessary services received on a cruise ship when the doctor is allowed under certain laws to provide medical services on the cruise ship and if the ship is in a U.S. port or no more than six hours away from a U.S. port when the services are rendered, regardless of whether it is an emergency.”

But even when Medicare provides coverage, it comes with a caveat, said Dr. Joel Shalowitz, a Northwestern University professor of medicine. “In all cases, the care must be for Medicare covered services and Medicare payment rates apply,” he said. Medicare rates, by the way, usually are a fraction of the sticker price charged by hospitals, but U.S. hospitals understand the rules and they also know Medicare’s playbook for what is covered. Foreign hospitals don’t typically deal with any of this – so confusions are possible.

FDIC Data Give Warnings

Investors who heed the warnings from quarterly FDIC data would have avoided the collapse of the banking system that began in late 2006 for community banks and spread to the larger regional banks in early 2007. Most banks that survived the purge of the banking system still have stock prices well below the highs of 2006 and 2007.

Recent Quarterly Banking Profiles released by the Federal Deposit Insurance Corporation have shown continued improvement in the banking system, but there are fresh concerns that need to be analyzed, particularly in the data now available for the second quarter of 2016.

At the end of the second quarter, there were 64 fewer FDIC-insured financial institutions, down to a total of 6,058. At the end of 2007, there were 8,533 banks — there are 29% fewer now.

Bank employment increased for the second consecutive quarter, this time by 5,302 net jobs created, but since the end 0f 2007 there are 169,400 fewer banking jobs.

FDIC Chairman Martin J. Gruenberg summed up the second quarter by touting increasing income and revenue, strong loan demand and a declining list of “problem” banks, which fell to 147 from 165. At the end of 2007 there were only 76 problem banks.

The FDIC chairman remains concerned about sluggish revenue growth caused by the prolonged period of low interest rates that continues to pressure net interest margins.

Investors bullish on bank stocks and hoping for a rate hike from the Federal Reserve should be aware of mark-to-market risks on “bonds held for trading” and the fact that some banks have been reaching for yield with maturity mismatches, opening negative exposures to higher yields.

Gruenberg reiterated his concerns about lending in the energy sector. His said asset quality on loans to oil and gas producers continues to deteriorate and the banking system may still have not experienced the full impact of consumer and commercial and industrial loans in energy-producing areas of the country. This issue is reflected in the increase in “reserve for losses” for the second quarter in a row.

Real Estate Investment Trusts

The SPDR Dow Jones REIT ETF (RWR) is an exchange-traded fund consisting of 99 publicly traded REITs. This is the ETF I will use to represent the new 11th sector of the S&P 500.

A real estate investment trust, or REIT, is a company that owns or finances real estate properties in return for rental income and capital gains on sales of properties in their portfolio of prominently buildings. This taxable income is paid to shareholders in the form of dividends.

Here is a scorecard for the REIT ETF and its four largest components.

The REIT ETF closed Tuesday at $101.38, up 10.6% year to date and in bull market territory 25.6% above its Feb. 11 low of $80.74.

The weekly chart shows a red line through the price bars. which is the key weekly moving average (a five-week modified moving average). The green line is the 200-week simple moving average considered the “reversion to the mean.” The study in red along the bottom of the chart is weekly momentum (a 12x3x3 weekly slow stochastic), which scales between 00.00 and 100.00, where readings above 80.00 indicates overbought and readings below 20.00 indicates oversold. A negative weekly chart shows the stock below its key weekly moving average with weekly momentum declining below 80.00 in a trend towards 20.00.

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The weekly chart for the REIT ETF is neutral, with the ETF above its key weekly moving average of $100.40 and well above its 200-week simple moving average of $84.62. Note that this key moving average held during the week of Feb. 12 as a buying opportunity at the “reversion to the mean”. The weekly momentum reading is providing a negative divergence as this week’s reading is projected to decline to 68.00 down from 69.75 on Sept. 2.

Investors looking to buy the REIT ETF should buy weakness to $97.99, which is a key level on technical charts until the end of 2016. A lower annual level is $71.49.

Investors looking to reduce holdings should do so on strength to $101.87, which is a key level on technical charts for this week only.

Simon Property, the largest component of the ETF with a weighting of 9.97%, closed Tuesday at $218.16, up 12.2% year to date and in bull market territory 23.9% above its Feb. 9 low of $176.11. This strength is surprising as this REIT primarily owns regional malls, under pressure from slowing retail sales.

The weekly chart for Simon Property is neutral with the REIT above its key weekly moving average of $216.16 and well above its 200-week simple moving average of $173.50. The weekly momentum reading is projected to decline to 60.73 this week down from 63.28 on Sept. 2.

Investors looking to buy the Simon Property should buy weakness to $206.94 and $188.73, which are key levels on technical charts until the end of 2016.

Investors looking to reduce holdings should do so on strength to $219.24 and $220.08, which are key levels on technical charts until the end of September.

Public Storage, the second largest component of the ETF with a weighting of 4.97%, closed Tuesday at $224.37, down 9.4% year to date and in correction territory 19.2% below its April 13 high of $277.60. This weakness should not be a surprise as this self-storage REIT caters to homeowners and small businesses, who are hurt by the extremely slow economic growth.

The weekly chart for Public Storage is negative but oversold with the REIT below its key weekly moving average of $232.34 indicating risk to the 200-week simple moving average of $190.22. The weekly momentum reading is projected to slip to 11.44 this week down from 12.70 on Sept. 2, falling further below the oversold threshold of 20.00.

Investors looking to buy the Public Storage should buy weakness to $211.29, which is a key level on technical charts until the end of this week.

Investors looking to reduce holdings should do so on strength to $231.60, which is a key level on technical charts until the end of 2016.

Prologis, the third largest component of the ETF with a weighting of 4.22%, closed Tuesday at $54.13, up 26.1% year to date and in bull market territory 53.6% above its Feb. 11 low of $35.25. This strength is surprising as this REIT primarily owns industrial properties, which should slump in this limp economy.

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The weekly chart for Prologis is positive but overbought with the REIT above its key weekly moving average of $52.91 and well above its 200-week simple moving average of $41.20 last tested as the “reversion to the mean” during the week of Jan. 15 when the average was $39.02, as a buying opportunity. The weekly momentum reading is projected to decline to 85.17 this week down from 85.85 on Sept. 2, becoming less overbought versus the threshold of 80.00.

Investors looking to buy the Prologis should buy weakness to $51.48 and $49.74, which are key levels on technical charts until the end September and the end of 2016, respectively.

Investors looking to reduce holdings should do so on strength to $57.27, which is a key level on technical charts until the end of this week.

Welltower, the fourth largest component of the ETF with a weighting of 4.07%, closed Tuesday at $77.92, up 14.5% year to date and in bull market territory 47.6% above its Feb. 11 low of $52.80. This REIT downs health care facilities, which could be affected by the future of Obamacare.

The weekly chart for Welltower is neutral with the REIT above its key weekly moving average of $76.61 and well above its 200-week simple moving average of $66.85. Note how this REIT traded back and forth around its “reversion to the mean” between the week of Aug. 28, 2015 and the week of March 18. The weekly momentum reading is projected to decline to 70.20 this week down from 72.86 on Sept. 2.

Investors looking to buy the Welltower should buy weakness to $76.42 and $74.79, which are key levels on technical charts until the end 2016 and the end of September, respectively. An annual level is $69.82.

Investors looking to reduce holdings should do so on strength to $79.21, which is a key level on technical charts until the end of September.

Know about high quality REITs that give you more advantages

The big question on the minds of investors and economists right now is whether — and when — the Federal Reserve will increase interest rates again. Consistently low interest rates since the financial crisis have juiced returns for real estate investment trusts, otherwise known as REITs.

REITs have benefited from historically low interest rates because they reduce the cost of capital to invest in new properties. But if the Fed raise rates this year, it could negatively affect REITs by raising the cost of debt. REITs typically have high levels of debt on their balance sheets, which they use to finance purchases of new properties. This is critical to generating growth.

The good news is that there are many strong, well-run REITs that will be fine, even if rates do rise from here. We’ll look at four high-quality REITs that likely will continue to grow even if rates do rise. These aren’t your typical REITs. They are some of the strongest and largest REITs around.

Two of the REITs we’ll examine provide real estate solutions for the health care industry. An aging population creates favorable tailwinds for this industry. Of these two, one is a Dividend Aristocrat, which means it has increased its dividend payments every year for at least 25 years. You can see all 50 Dividend Aristocrats here.

Another high-quality REIT we’ll look at has paid monthly dividends every month since it went public. It is one of the most shareholder-friendly businesses around. You can see the best monthly dividend stocks here.

The first REIT analyzed in this article also stands out; it is the largest publicly traded REIT in the U.S.

1. Simon Property Group (SPG)

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Simon Property Group has a high-quality portfolio and is likely to generate growth and high dividends, despite the possibility of higher interest rates.

Simon Property has the financial strength to withstand higher interest rates, as it is the largest publicly traded REIT, with retail properties across North America, Europe and Asia.

The company was founded in 1993. Today, Simon Property Group has a market cap of $68.18 billion. Simon Property Group has 230 properties that together account for 191.4 million square feet of space. The company’s properties are typically large malls and premium shopping centers.

Simon Property Group’s focus on high-end retail space is working well. Last year, this REIT’s funds from operation rose 10% to $3.57 billion. Funds from operation, or FFO, is a non-GAAP metric commonly used to analyze the cash flow generated by REITs.

Success is nothing new for Simon Property Group. The stock has generated total returns of 14.3% a year from 2006 through 2015. For comparison, the S&P 500 index has averaged total returns of 7.0% a year over the same period.

Simon Property Group is off to a great start to 2016 as well. FFO rose 9% last quarter, after excluding a one-time investment gain in the same quarter last year. The company also raised its full-year guidance, and now expects 10% growth in FFO for the full year.

Simon Property Group has a 3.1% dividend yield and recently raised its dividend by 6.5%. The company has traded at a price-to-FFO ratio of between 18 and 19 over the last several years. It is currently trading at about 20 times expected full-year FFO. The company is likely trading around the higher end of fair value at current prices.

2. Welltower (HCN)

Welltower has performed extremely well for its shareholders in recent years. In fact, over the past decade, the stock has doubled its investors’ money, including reinvested dividends. This comes out to a roughly 7.2% compound annual return, which is an impressive performance, given the last 10 years included the Great Recession.

Even better, Welltower is likely to continue rewarding shareholders with strong gains over the next decade, because it stands to benefit from a fundamental tailwind: the aging population.

Based on a Gallup survey conducted last year, baby boomers make up roughly 33% of the adult population in the U.S., and these people will be entering retirement very soon. As the baby boomer population ages, demand for health care properties should rise.

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Welltower also has a significant international footprint. Its 1,400 combined senior housing, outpatient, and post-acute facilities are spread across the U.S., Canada and the U.K.

Welltower has a high-quality tenant portfolio. Occupancy stood at 85% last year, and the company generates more than enough cash flow to withstand higher interest rates. FFO per share increased 6% last year to $4.38.

What’s more, its debt payments going forward are modest. Welltower’s debt payments total $854 million in 2016, $825 million in 2017, and $921 million in 2018. This does not seem to pose a problem, as Welltower generated $1.3 billion in funds available for distribution last year alone.

It is off to a solid start this year; FFO increased 6% last quarter, and the company expects 3%-5% FFO growth in 2016. As a result, Welltower’s 4.6% dividend looks secure.

3. HCP (HCP)

Like Welltower, HCP invests in health care properties, which include senior housing, skilled nursing, life science facilities, medical offices and hospitals.

HCP has a long track record of delivering strong returns to shareholders. According to the company, through June 30, 2016, HCP generated a 14.5% compound annual return for its investors, including reinvested dividends, since inception in 1985.

HCP is a Dividend Aristocrat, having raised its dividend each year for the past 31 years. HCP has maintained such an impressive streak of regular dividend growth because of its strong asset base, which generates significant cash flow.

HCP has been exposed to higher scrutiny over the past year, however, because of an ongoing Department of Justice investigation into HCP’s largest tenant,ManorCare, which has been charged with making Medicare claims for services that should have not been paid.

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This has weighed on HCP’s valuation, as investors are worried about the financial impact of the investigation. The good news is that HCP has prepared for this: It sold 50 ManorCare properties for $350 million last year. HCP also plans to spin off the rest of its ManorCare properties into a separately traded company, giving investors the final call whether they want to continue owning the company.

Spinning off the ManorCare properties will allow HCP to strengthen its asset base. Going forward, the company plans to focus on private-pay facilities. In addition, HCP likely will achieve more attractive terms when it attempts to acquire new properties, which could accelerate its growth.

Even with ManorCare’s issues last year, HCP still earned $3.16 per share of adjusted FFO, which was a 4% year-over-year increase. That was more than enough cash flow to sustain the dividend.

HCP currently provides a hefty 6.0% dividend yield, which is far greater than the S&P 500 average yield of 2.1%.