Big Pharma typically is seen as a sleepy space where cost-cutting and buyouts are simply an effort to offset generic competition and patent expirations. The result is that most big pharmaceutical players see only incremental growth and rely on a big yield to attract investors.
Healthcare giant Baxter (BAX) partly fits this mold, but is better than some of the megacaps in pharma because it is more specialized. Baxter provides sophisticated treatments for immune disorders, kidney disease and other specific medical conditions — meaning it might navigate competition and patent trouble better thanks to specialization.
On the income side, Baxter’s 2.7% dividend is nice and very sustainable at 41% of the current year’s earnings and 38% of fiscal 2014 forecasts. BAX dividends also have grown briskly during the past few years in contrast to slower dividend growth in Big Pharma. Baxter paid a one-time dividend of 58 cents at the end of 2003, but now pays 49 cents a quarter for $1.96 annually — well more than three times the dividend a decade ago.
And broadly speaking, healthcare is the ultimate low-risk play in the long-term thanks to an aging baby boomer population that will need increased care in the years ahead.