When it comes to finding great dividend stocks, some sectors are just natural winners. Steady and growing demand, big-time cash flows and large economic moats are hallmarks of these prime dividend stock sectors. Those factors enable some sectors to throw off plenty of big-time dividends.
Healthcare stocks meet those requirements and then some.
Demand for treatment continues to grow exponentially as our overall population increases and ages.
Meanwhile, long patent timelines of various drugs, delivery and other medical products provides plenty of stable cash flows. These factors enable healthcare stocks to produce enviable cash flows and earnings, which translate into hefty dividends for their investors.
And the trends propelling the healthcare industry are only getting stronger — there’s still plenty of growth in tank for the sector.
For investors looking to score some quality dividend stocks, the healthcare sector has to be on your radar. With that in mind, here’s seven of the best dividend stocks in medicine to buy today.
Healthcare Stocks to Buy: GlaxoSmithKline plc (GSK)
Dividend Yield: 4.99%
When it comes to dividends, Big Pharma offers some of the biggest yields. And the U.K.’s GlaxoSmithKline plc (ADR) (NYSE:GSK) offers a juicy 4.99% payout.
GSK has a huge portfolio of drugs covering a wide range of products and therapies. And that portfolio of products has been revamped in recent years. The pharma giant recently conducted a multi-step deal with rival Novartis AG (ADR) (NYSE:NVS) for Novartis’ profitable vaccine business, as well as its hefty consumer products portfolio, in exchange for Glaxo’s oncology drug unit.
While the cancer drugs have the potential to be profitable down the road, the boring consumer products and vaccines divisions feature steady and predictable growing demand. That’s just what GSK needs to turn back the lost revenue tide from a few blockbuster patent expirations.
And speaking of blockbuster drugs, GSK has a more than a few in the works. That includes new HIV/AIDs therapies, respiratory drugs and a few post-split cancer treatments.
For investors, the revamped portfolio and potential new blockbusters will take time to work. And GSK has been managing costs and restructuring to get itself through. With that, this healthcare stock should be able to keep its dividend going until these bets pay off.
Healthcare Stocks to Buy: Johnson & Johnson (JNJ)
Dividend Yield: 2.68%
When it comes to healthcare stocks, there’s no bigger blue chip than Johnson & Johnson (NYSE:JNJ), whose empire spans more than 250 operating companies across a variety of healthcare subsectors.
That includes consumer healthcare products and medical devices to advanced oncology and immunology drugs. JNJ really does it all.
And doing it all makes it a pretty stable dividend stock as well.
Thanks to JNJ’s multiple product lines, the firm has been able to navigate some tough economic markets over the course of its history. When one of its product lines is suffering, another can pick up the slack. And the fact that JNJ sells its products in more than 60 countries is the icing on the cake. The firm’s adjusted earnings have continued to increase for over 32 years based on its deep product line.
All of this has allowed JNJ to become a model of dividend sustainability. JNJ stock currently yields 2.68%, but that yield should continue to increase. JNJ has managed to grow its dividend every year for the last 53 years.
If you can only buy one dividend stock in the healthcare sector, JNJ has to be it.
Healthcare Stocks to Buy: AbbVie Inc (ABBV)
Dividend Yield: 3.45%
Biotech stocks and dividend stocks usually don’t go hand in hand. But when you’re a spinoff of a mega-traditional pharmaceutical — in this case Abbott Laboratories (NYSE:ABT) — dividends are in your blood.
Driving that has been its portfolio of big-time biotech drugs. That includes insane blockbuster Humira. The autoimmune disease medication is currently the best-selling drug on the planet and managed to funnel more than $15 billion in revenues back to ABBV last year.
However, despite owning the best-selling drug, that’s still a pretty high yield for a biotech. And that’s because the yield comes with a potential hiccup — Humira falling off the patent cliff at the end of 2016.
This fact — and the huge hit to AbbVie’s revenues — has punished the stock. But it could be the chance for dividend hunters. ABBV has a rich patent portfolio and numerous drugs in late-stage trials. More importantly, management is confident that method-of-use patents will help keep Humira generics away for several more years.
That should give ABBV time to come up with a solution.
Healthcare Stocks to Buy: CVS Health Corp (CVS)
Dividend Yield: 1.75%
When people think of CVS Health Corp (NYSE:CVS), they think of its drug stores. And they should at first.
CVS operates nearly 9,600 of these drug stores. And its recent deal with Target Corporation (NYSE:TGT) will add another 1,700 stores to its mix. The pharmacies continue to churn out regular profits for CVS. As does the company’s MinuteClinic-branded line of urgent care facilities.
But the real name of the game — and the driver or current and future growth — is its pharmacy benefit management business. As a pharmacy benefit manager, CVS basically negotiates the prices between producers and buyers of drugs. That can be private citizens, hospitals, other pharmacies or even the Federal government.
CVS is currently the second-largest benefits manager and that huge size has afforded it plenty of stable and growing revenues. And that should continue, as the larger you are in this business, the better deals you can negotiate on drug prices. That’s important as rising drug costs are a major concern for pretty much every one.
In the end, that should help drive CVS’ dividend. The 1.75% yield may not seem like much at first, but CVS has grown that payout by 750% in the last ten years.
Healthcare Stocks to Buy: Welltower Inc (HCN)
Dividend Yield: 4.5%
It stands to reason that if we are in need of more doctors, hospitals and other healthcare solutions, we need more places to conduct those services.
So when it comes to finding great healthcare-focused dividend stocks, the firms that own the hospitals, doctors’ offices and senior living facilities might make the best plays.
And none are bigger than Welltower Inc (NYSE:HCN).
The former HealthCare REIT owns a whopping 1,500 different healthcare-related properties. This includes a host of senior housing, long-term post-acute properties, hospitals, outpatient medical buildings and doctors’ offices. The real beauty is that HCN just owns the buildings, not the underlying businesses that rent them. It doesn’t have to deal with insurance or Medicare etc. It just sits back and collects a check for owning the property.
That’s a remarkable place to be. HCN continues to see rising funds-from-operation across its portfolio. And since it’s structured as a real estate investment trust, HCN is required to kick back much of that to investors as dividends. The firm has had great dividend growth since its founding in the 1970s and with this quarter’s payment, Welltower will have delivered its 181st consecutive quarterly cash dividend
When it comes to investing in medical real estate, HCN is the best for dividend stock hunters.
Healthcare Stocks to Buy: Quest Diagnostics (DGX)
Dividend Yield: 1.9%
Quest Diagnostics Inc (NYSE:DGX) is at the crossroads of several bullish catalysts that should help propel the firm’s dividends further down the road.
First, is the DGX’s core business of diagnostic testing. We’ve all had blood work or similar tests done by our doctors. Most of the time, that blood work is done by an off-site testing facility like DGX. As many hospitals and physicians look to lower their own costs, the rise in hiring out a firm like Quest is growing as well. For Quest, many of these testing services come with cheap fixed-costs and high margins.
Quest has taken this diagnostic testing and lab work to the next level. DGX now offers clinical trials for pharmaceutical and biotech firms. Like physicians, it’s often cheaper for a drug developer to hire someone else to do the grunt work of trials. For DGX, it’s another chance for it to grab stable revenues.
The proof is in the pudding. The continued mantra of saving money has helped DGX quickly become a dividend star. It only initiated a payout in 2012, but since then it’s grown its payout every year. Last year, investors saw a 14% jump. This should continue as more businesses use Quest’s services.
Ultimately, DGX is one of the best dividend stocks for growth in the healthcare sector.
Healthcare Stocks to Buy: Vanguard Health Care ETF (VHT)
Dividend Yield: 1.3%
Perhaps the best strategy to own healthcare stocks, is to buy them all. The Vanguard Health Care ETF (NYSEARCA:VHT) is the best way to do just that.
VHT tracks the MSCI US Investable Market Health Care 25/50 Index. That underlying index basically gives investors exposure to the entire U.S. healthcare market. This includes small- mid- and large-cap stocks. DaVita HealthCare Partners Inc (NYSE:DVA) and Pfizer Inc. (NYSE:PFE) are just some of the varied holdings for the exchange-traded fund.
That wide range of holdings does throw off a 1.3% dividend yield. While that’s about the same as a Treasury bond, VHT has delivered on the returns front as well. Over the last 10 years, VHT has managed to return 11.31% annually. So you’re looking at bond-like dividends with a hefty side of growth. That combination makes the ETF a powerful play for those investors seeking dividend stocks as well as capital gains obsessed portfolios.
All in all, VHT is simply the best way to capture the entire spectrum of healthcare stocks. And since it’s a Vanguard fund, expenses for the ETF run a dirt cheap 0.12%.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.