The greatest demographic trend affecting the United States today is the aging of the baby-boomer generation. Many of the baby boomers (those born between 1946 and 1964) are beginning to retire. In fact, starting this year it is estimated that 10,000 baby boomers will retire every day. This means there will be more than 3.6 million potential retirees every year for the next 17 years.

Given the magnitude of this trend, every investor should own a stock or two that will benefit. One of the best ways to invest for this demographic is to own health care REITs (Real estate investment trusts). These REITs usually own assets such as hospitals, rehab facilities, nursing homes and medical office buildings. Most pay very healthy dividends and all should experience steady growth as aging baby boomers demand more of their services.

To identify the best health care REITs, I ran a screen for companies with positive five-year earnings and dividend growth, less debt than equity and a current dividend yield higher than 5%. These metrics establish some level of safety and a good starting point for narrowing down the field.

Here are three health care REITs that should be able to deliver secure, growing dividends…

1. Senior Housing Properties Trust (NYSE: SNH)
Yield: 7%
Senior Housing is the fourth-largest health care REIT on the stock market. The company owns 378 properties spread across 39 states and has an investment portfolio valued at more than $5 billion. Compared to other health care REITs, Senior Housing has a more secure income stream because 90% of the company’s income comes from private-pay properties and not from facilities that rely on Medicare and Medicaid reimbursement.

Senior Housing made more than $1 billion of acquisitions last year. As a result, the REIT metric for cash flow, funds from operations (FFO), rose 18% to $258 million in 2011 from $219 million a year earlier. FFO provided 140% coverage of the dividend.

Analysts target 8% income growth for the REIT this year. Senior Housing has a solid balance sheet with debt at 74% of equity and an investment grade rating from Moody’s and Standard & Poor’s.

Senior Housing has increased its dividend in each of the past 10 years and grown the dividend roughly 3% a year in the past five years. The last increase was a 2.7% hike in October to a $1.52 annualized rate. These shares currently yield about 7.2%.

2. National Health Investors (NYSE: NHI)
Yield: 5%
National Health Investors finances health care properties through purchase and leaseback transactions and mortgage loans. It primarily invests in nursing homes and assisted living facilities, as well as medical office buildings and hospitals. National Health has investments in 122 properties across 24 states and a portfolio valued at $473 million. About 45% of its leases are with one large tenant, National Healthcare Corp. (AMEX: NHC), which has leases running through year-end 2021.

National Health funded $100.4 million of health care real estate investments last year, which resulted in 5% growth in FFO to $80.2 million in 2011, from $76.5 million in 2010. This REIT beats its peers handily on key ratios of financial strength and profitability. National Health has the least financial leverage of any health care REIT, with debt at only 22% of equity, as well as the best operating margin — 75% compared with operating margins averaging 57% for industry peers. 

National Health has posted 10 years in a row of dividend growth and has a 5.4% yield. The company raised its dividend by 5.7% in December to a $2.60 annualized rate and also paid a special one-time dividend of $0.22. The payout is a bit high at 90% of FFO, but analysts say this REIT will deliver at least 7% income growth this year.

3. LTC Properties (NYSE: LTC)
Yield: 6%
This REIT invests mainly in senior housing and long-term care facilities through facility lease transactions, mortgage loans and other investments. LTC’s portfolio consists of 208 properties in 30 states and is valued at $798 million. More than 60% of LTC’s income is from private payers, which lowers risk from Medicare cuts.

In the past 15 months, LTC has acquired 11 new facilities, mainly in the Southwestern United States. These acquisitions were the main driver of 31% growth in FFO last year to $59.5 million, from $45.4 million in the prior year. Even with recent purchases, LTC has maintained a high-quality balance sheet, showing total debt at $159 million compared to more than $976 million of equity.

LTC stands out from the health care REIT pack for the safety and strong growth of its dividend. Since 2003, LTC has grown the dividend by an average of 12.6% a year. Payout is very manageable at 84% of earnings. The last increase was 3.6% in January to a $1.74 annualized rate. Also, unlike most of its peers, LTC pays dividends monthly. Shares yield about 5.6%.

Risks to consider: Health care REITs could be hurt if Medicare and Medicaid reimbursement rates decline, since this would affect tenant revenue and their ability to pay rents. Because REIT dividends are taxed as ordinary income rather than at the 15% dividend rate, these investments are best held in a tax-sheltered account.

Action to take–> My top pick overall is Senior Housing because of its generous dividend and comparatively low exposure to Medicare/Medicaid cuts, but both National Health and LTC also offer exceptional dividend safety and good growth.