by Alyssa Oursler | August 2, 2013 12:27 pm
If you’re looking for a solid long-term investment, healthcare stocks are a perfect place to start.
The reasoning is obvious: Not only are healthcare plays more or less recession-proof since medical care, devices and prescriptions are necessities no matter how the economy fares, but their products also are playing an increasingly larger role in our lives. More folks across the board take prescription meds these days, all while our population is aging rapidly and living longer.
Of course, the sector isn’t a complete slam-dunk. Small biotech plays can be volatile, while some of the world’s biggest drugmakers are struggling in the face of generic competition.
One way to help protect yourself from these headwinds: Pick stocks from the sector that offer solid and sustainable dividends, so you can afford a little weakness here and there (as long as there’s long-term growth, anyway).
With that in mind, let’s take a look at three attractive healthcare stocks that could put a consistent buck in your pocket for some time.
Dividend Yield: 3.4%
This week, Novartis received the kind of headline that typifies the risks facing drugmakers — news broke that a patient taking the company’s multiple sclerosis pill Gilenya developed a rare and possibly fatal disease.
As Reuters reported, Deutsche Bank analyst Tim Race expressed that the case is a bit of a red flag for the drug’s future growth — especially in the face of increasing competition in the space. Luckily for NVS, investors don’t seem to care — maybe because Novartis is keeping them happy with a hefty annual cash payout.
Novartis has issued dividends for more than two decades, and its payout has increased more than threefold during the past 10 years alone. Right now, its $2.43 per share dividend, paid annually, is good for a solid 3.4% yield — the cherry on top of decent year-to-date share appreciation.
Also, NVS is currently slated to make $5.37 per share next year, giving it a payout ratio of 45% — higher than the S&P 500′s average, but still much more sustainable than other healthcare names like GlaxoSmithKline (GSK) and Merck (MRK). And the company has a decent war chest of $6 billion in cash and short-term investments that should help keep the payouts coming.
Dividend Yield: 3.5%
Next up, we have AbbVie (ABBV) — the research-based pharma company recently spun off from Abbott Laboratories (ABT). Its main drug is arthritis treatment Humira, but the company also has an impressive pipeline of new products in its back pocket. And although Humira comes off patent in 2016 here in the states, many suggest it’s a difficult product to substitute.
The spun-off company has enjoyed a strong start, climbing nearly 30% since it started trading in December 2012. And despite that red-hot run, its dividend still yields an attractive 3.5%.
While there’s no payout history to reflect on, AbbVie’s projected annual payout of $1.60, paid in 40-cent quarterly increments, is less than half next year’s expected earnings. Plus, those earnings are expected to grow at a double-digit rate over the next half-decade.
Also, as of March, ABBV had nearly $7.5 billion in cash and short-term investments, while operating cash flow came to $6.3 billion at the end of last year.
That’s a recipe for a steady, if not growing, dividend.
Dividend Yield: 5.5%
AstraZeneca (AZN) — like rival GlaxoSmithKline — is in the midst of a scandal in China, all while the company is suffering from slipping revenue and earnings. Like many big-name global drugmakers, the company is under intense pressure from generic competitors.
Still, investors can take some solace in AZN’s steady and ample dividend. AstraZeneca has been rewarding shareholders for more than two decades, paying semiannually. AZN usually pays out a larger dividend earlier in the year, with a smaller one to come later; based on AstraZeneca’s last two payouts, the stock yields roughly 5.5%.
That sure makes the company’s shrug-worthy 7% year-to-date climb a little sweeter, eh?
The global healthcare name also boasts $7 billion in annual operating cash flow and more than $8 billion in cash and investments — numbers that make that 5.5% yield seem plenty sustainable. Plus, if the company strikes it rich with the next big drug — a possibility considering it’s teaming up with a private biotech firm to collaborate on a new anemia treatment — you’ll get the best of both worlds.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.
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