Healthcare stocks are no strangers to uncertainty. There’s continued talk about changes to U.S. healthcare laws, and disruption to the statewide insurance exchanges that were created as part of the Affordable Care Act.
But for long-term investors focused on dividends, the sector holds a lot of potential regardless of short-term volatility. After all, healthcare stocks are one of the few recession-proof investments on Wall Street; patients cut back on all manner of spending before they allow their health or quality of life to suffer.
Similarly, healthcare is one of the most reliable sectors for future price appreciation given the non-stop inflation of medical spending in the U.S. and ever-growing demand abroad for 21st century cures.
When you throw in the fact that many healthcare stocks also provide robust and regular dividend payments, the appeal of the sector becomes very clear.
Thus, if you can stomach ups and downs as Congress debates healthcare, then consider these dividend payers in the sector as long-term investments.
Healthcare Stocks to Buy: AbbVie (ABBV)
Market Cap: $145 billion
Dividend Yield: 2.8%
2017 Return: 47% vs. 15% for the S&P 500
AbbVie Inc (NYSE:ABBV) was spun off of Big Pharma mainstay Abbot Laboratories (NYSE:ABT) in 2013, and it is the drug-focused arm of the previous company. It’s home to current blockbusters, including psoriasis treatment Humira as well as a research-driven drugmaker looking for the next generation of big-name cures.
Analysts are projecting revenue growth at ABBV of almost 10% this year and next, and profit expansion of 30% or better thanks to a strong pharmaceutical portfolio. And that success has translated into generous dividends, as the company has ramped up its payout from 40 cents after its initial spin-off to 64-cents-per-share just four years later.
With decent profit growth resulting in continued dividend growth, investors can enjoy not just a robust payout now but the hopes of continued payouts from this healthcare giant going forward.
Healthcare Stocks to Buy: Merck (MRK)
Market Cap: $170 billion
Dividend Yield: 3.0%
2017 Return: 7% vs. 15% for the S&P 500
Merck & Co., Inc. (NYSE:MRK) continues to see growth as its drugs look to fight common American health conditions. Its blockbuster diabetes drug Januvia, which helps lower blood sugar, accounts for some $4 billion in annual sales and its Zetia cholesterol medication racks up over $2 billion in annual sales.
And it’s not done, either, with a strong product pipeline that includes cancer drug Keytruda. The pipeline could open avenues to much bigger revenue after a very nice showing so far in 2017. The marriage of so-called “maintenance” drugs to provide regular revenue will fuel dividends now, and new drugs could yield continued dividend growth going forward.
With one of the biggest and most stable brands in medicine, this healthcare stock is a rock-solid long-term play for dividend investors.
Healthcare Stocks to Buy: Johnson & Johnson (JNJ)
Market Cap: $380 billion
Dividend Yield: 2.4%
2017 Return: 22% vs. 15% for the S&P 500
If you’re looking for a low risk dividend stock, you’d be hard pressed to find a better play than Johnson & Johnson (NYSE:JNJ). As one of two U.S. corporations with a AAA credit rating, JNJ is as stable as they come. And why not, since the healthcare giant generates about $19 billion annually in cash flow and boasts over $39 billion in cash in the bank?
That stable balance sheet comes from a reliable revenue stream that is hard to match in any sector. In addition to top-notch clinical products and pharmaceuticals, the company has the benefit of big-brand consumer products that include Band-Aid, Tylenol and Benadryl just to name a few.
There admittedly isn’t a ton of growth potential here, but patient investors will be richly rewarded with slow and steady profits.
Healthcare Stocks to Buy: Novo Nordisk (NVO)
Market Cap: $100 billion
Dividend Yield: 2.3%
2017 Return: 40% vs. 15% for the S&P 500
Novo Nordisk A/S (ADR) (NYSE:NVO) is a great long-term play on a great long-term trend. And while the current dividend yield is only a hair bigger than the yield on 10-year Treasury bonds, the potential for total return is much higher.
That’s because one of the biggest healthcare challenges right now is the rise in diabetes over the last few decades. The Center for Disease Control and Prevention estimates that the percentage of Americans with diabetes has soared from about 2% in 1970 to about 7% currently.
That is a disturbing trend, but also a big opportunity for Novo Nordisk since it specializes in diabetes care and prevention. That includes insulin injection technology like “pen needles” as well as weight management products that can help at-risk patients.
Healthcare Stocks to Buy: Cardinal Health (CAH)
Market Cap: $21 billion
Dividend Yield: 2.8%
2017 Return: -7% vs. 15% for the S&P 500
Cardinal Health Inc. (NYSE:CAH) is part of a boring but reliable segment of the healthcare business via medical supplies. And as one of the biggest healthcare products companies in the world, Cardinal dominates this field with everything from antiseptic wipes to patient slippers to advanced wound care products. If you’re ever in a hospital, chances are you’re surrounded by Cardinal items and don’t even know it.
Like many other stocks on this list, the reliability of this business leads to consistent profits and consistent dividend growth. In fact, its most recent payout of about 46 cents is double the 21.5 cents paid to shareholders at the beginning of 2012.
Healthcare Stocks to Buy: Omega Healthcare (OHI)
Market Cap: $6 billion
Dividend Yield: 8.2%
2017 Return: 2% vs. 15% for the S&P 500
Omega Healthcare Investors Inc (NYSE:OHI) is classified as a “real estate investment trust” or REIT. However, it focuses on senior living and long-term care properties that make it very much a healthcare play.
Omega mainly operates “triple-net lease” properties, which means it’s not liable for three burdensome costs that can plague landlords — namely, taxes, maintenance and insurance. Think of Omega as a middleman that just collects the rent.
Reliable rent checks result in reliable dividend payments, too, and since REITs must past 90% of taxable income on to shareholders, the result is a juicy yield and high-yield healthcare play that should pay off nicely for long-term investors.
Healthcare Stocks to Buy: Amgen (AMGN)
Market Cap: $130 billion
Dividend Yield: 2.6%
2017 Return: 23% vs. 15% for the S&P 500
Amgen, Inc. (NASDAQ:AMGN) was all the rage as Wall Street focused on the potential of next-generation cures out of the biotechnology industry a few years ago. But the company has since settled down lately as revenue has plateaued. But this happens to many stocks as they mature.
The good news is that Amgen has embraced its role as a $120 billion healthcare powerhouse, choosing to satisfy shareholders via dividends instead of wasting money on knee-jerk acquisitions or other fruitless efforts to chase unrealistic growth. AMGN has increased payouts a massive 310% since instituting regular dividends in 2011, but those payouts remain roughly a third of earnings and are ripe for future increases as well.
Healthcare Stocks to Buy: Pfizer (PFE)
Market Cap: $215 billion
Dividend Yield: 3.5%
2017 Return: 12% vs. 15% for the S&P 500
Like other healthcare megacaps on this list, Pfizer Inc. (NYSE:PFE) doesn’t have a lot of growth potential to offer investors. It is already a $200 billion company and its product pipeline is largely replacing revenue lost by patent expirations on treatments such as its blockbuster Viagra, among others.
But remember, dividend stock investing is a long-term endeavor and isn’t about short-term revenue trends. It’s about consistent payouts and a stable business that will be there to keep paying you in several years, if not several decades.
Pfizer has that in spades. The company has paid dividends in some form or fashion since 1901, and while distributions were slashed during the Financial Crisis of 2009 it has re-attained those payout levels once more and it should see dividends continue to grow going forward.
Healthcare Stocks to Buy: CVS
Market Cap: $77 billion
Dividend Yield: 2.6%
2017 Return: -3% vs. 15% for the S&P 500
You may think of CVS Health Corp (NYSE:CVS) as just a drugstore, but it’s also increasingly a core healthcare play thanks to its pharmacy benefits footprint. This includes its Omnicare arm that exclusively services long-term care facilities, as well as corporate pharmacy benefits programs that manage claims and payments. Throw in its growing “MinuteClinic” operations that provide in-store checkups and you can see this is more than just a retail stock.
It isn’t a high margin business to be involved in the fulfillment of prescription drugs, but CVS has a huge footprint that allows it to be efficient and it has a great brand that makes it a force to be reckoned with. Those operations also help support reliable revenue that pays a nice dividend to shareholders.
Healthcare Stocks to Buy: GlaxoSmithKline (GSK)
Market Cap: $99 billion
Dividend Yield: 5.0%
2017 Return: 5% vs. 15% for the S&P 500
GlaxoSmithKline plc (ADR) (NYSE:GSK) is a Big Pharma name you may be familiar with, but its stability and dividends don’t come simply from branded drugs. This healthcare giant is a leader in vaccines as well as over-the-counter products, including Excedrin pain relievers and Sensodyne oral care products.
Shares have been sleepy for the last few years as the product portfolio hasn’t really delivered any breakout winners. However, dividend investors shouldn’t be looking for a flashy new drug but rather reliable performance — and GSK has that in spades thanks to over $3 billion free cash flow last fiscal year.
As of this writing, Jeff Reeves did not own a position in any of the aforementioned securities.
