3 Top Blue-Chip Healthcare Stocks With Healthy Dividends

healthcare stocks - 3 Top Blue-Chip Healthcare Stocks With Healthy Dividends

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The healthcare sector is an excellent place to find high-quality companies that produce consistent growth over long periods of time. Because of the continuously strong demand for healthcare, there are many blue-chip healthcare stocks that pay dividends to shareholders that grow over time.

Healthcare stocks should see growth moving forward, due to a major demographic trend: the aging U.S. population. It is estimated that more than half of the U.S. population will be above the age of 80 by the end of the current decade. This trend will be seen in many developed nations around the world as well.

As a result, income investors looking for safe dividends should consider the healthcare sector, and these three healthcare stocks in particular.

Blue-chip companies are often with steady growth in their profits and dividends over many years. The companies discussed in this article will likely rise to meet the challenge of serving an aging population.

These companies are all long-time reliable dividend payers, with two of them just one year away from attaining dividend king status, as their dividend streaks now stand at 49 years. The third’s back-to-back 10%-plus annual dividend increases show that the company expects earnings per share to grow meaningfully.

Investors looking for quality blue-chip healthcare stocks should start with these three:

  • Abbott Laboratories (NYSE:ABT)
  • Becton, Dickinson & Co. (NYSE:BDX)
  • Merck & Company (NYSE:MRK)

Healthcare Stocks: Abbott Laboratories (ABT)

Close up of Abbott Laboratories sign at their headquarters in Silicon Valley
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Abbott Laboratories has been in business since the late 19th century and has grown into one of the largest names in health care. This $216 billion market company has annual sales of $35 billion.

The company has seen a massive contribution from Covid-19 related testing equipment since the onset of the pandemic. Sales grew more than 35% in the most recent quarter. Excluding Covid-19 related products, sales still grew nearly 8%, showing that Abbott Laboratories is more than just a Covid-19 story.

EPS is expected to be at least $5 in 2021, representing growth of 37% from the prior year. For context, since 2013, when Abbott spun off AbbVie (NYSE:ABBV), EPS has a compound annual growth rate of 7.8%.

Abbott was able to very quickly adapt to the challenges of Covid-19 and reap the rewards of diagnostic demand. This gives a glimpse into the company’s ability to innovate, something that should allow it to capture how market share in products that people will require as they age.

Innovation is how the company has been able to raise its dividend for 49 consecutive years. Abbott has paid an uninterrupted dividend for nearly 400 consecutive quarters.

Shareholders have received an average annual dividend increase of 12.5% since 2013, with the most recent increase resulting in a 25% raise. With an annualized dividend of $1.80, ABT stock has an expected payout ratio of 36%. The average payout ratio is below 40% since 2013.

Abbott has a long and storied history and has proven itself successful at bringing products to market that consumers need. Covid-19 related testing equipment is emblematic of this innovation. Abbott has capitalized on success and rewarded shareholders with a growing dividend for nearly five decades.

Just as important, the payout ratio is extremely healthy and leaves the room for continues dividend raises in the coming years.

Becton, Dickinson & Co. (BDX)

The front of a Becton Dickinson (BDX) office in Ontario, Canada.
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Becton, Dickinson & Co. is another medical device company that was founded in the late 1890s. The company is valued at almost $76 billion and had sales in excess of $17 billion in fiscal year 2020.

BD has taken great steps to add to its core businesses over the past few years through acquisitions. Its most recent was acquiring C.R. Bard at the end of 2017. This acquisition greatly enhanced BD’s offerings in the area of intervention, specifically in vascular, oncology and urology.

The $24 billion purchase of Bard was made primarily from cash, which restricted BD’s ability to grow its dividend over the past few years. Following several years of sub-3% dividend growth, shareholders received a 5% increase late last year. Despite low growth over the past few years, the dividend has a compound annual growth rate of almost 9% over the last 10 years. BD’s next increase will mark the company’s 50th consecutive year of dividend growth.

With an annualized dividend of $3.32 and expected EPS of $12.80 for 2021, BD has a projected payout ratio of 26%, lower than the 10-year average payout ratio of 31%. BD has been so effective at growing its bottom line over the years that its dividend payout ratio has not been above the 35% level since at least 2011.

BD continues to evolve its business and the company has proven recently that it isn’t afraid to make large purchases to expand its reach. While the addition of Bard led to muted dividend growth in the short-term, the long-term benefits of the acquisition will prove fruitful to BD, especially as our society ages.

And with this catalyst for growth, combined with a low payout ratio, BD shareholders should continue to see a rising dividend.

Healthcare Stocks: Merck & Company (MRK)

Merck (MRK) logo outside of corporate building
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With a market capitalization approaching $200 billion, Merck & Company is one of the largest healthcare companies in the world. Merck had revenue of $52 billion in 2020.

Merck has multiple products in its portfolio that are showing strong growth rates. Key amongst them is Keytruda, which is used as a first line treatment option in several different cancers. The product grossed more than $14 billion in 2020 and could be headed for peak sales in the mid-$20 billion range. Growth will be led by new indications as well.

Keytruda is patent protected in key markets well until at least the end of this decade. For example, Merck won’t lose protection on its top selling product until 2028 in the U.S., 2030 in the EU and 2032 in Japan.

Undoubtedly, Keytruda is very important to the company, but Merck has additional products that are also important to future success. The company’s line of vaccines, highlighted by HPV vaccine Gardasil, have shown solid growth rates. Gardasil saw some pandemic-related challenges in 2020, but was seeing high demand in key markets such as China, which did return to growth in the most recent quarter.

Merck also maintains a leadership position in animal health, which provides for some diversification away from pharmaceuticals and vaccines.

Merck’s dividend history isn’t as lengthy as the other names in this article, with just nine years of dividend increases. The dividend has compounded at a pedestrian rate of less than 4% since 2010. However, the last two dividend increases that shareholders have received were both in the double digits.

The new annualized dividend of $2.60 is expected to consume just 40% of expected EPS of $6.58 for the year. Merck’s average payout ratio since 2011 is 46%.

As one of the largest pharmaceutical companies in the world, Merck has a size and scale not easily matched. The company should continue to benefit from Keytruda as the drug doesn’t begin to lose patent protection until the end of this decade.

The dividend payout ratio has been rather consistent over the last 10 years. The dividend growth rate has increased alongside growth for EPS. Powered by a strong business model, investors can likely expect to see higher dividend increases.

On the date of publication, Bob Ciura was long MRK stock. He did not have (either directly or indirectly) any other positions in the securities mentioned in this article.

Bob Ciura has worked at Sure Dividend since 2016. He oversees all content for Sure Dividend and its partner sites. Prior to joining Sure Dividend, Bob was an independent equity analyst. His articles have been published on major financial websites such as The Motley Fool, Seeking Alpha, Business Insider and more. Bob received a bachelor’s degree in Finance from DePaul University and an MBA with a concentration in investments from the University of Notre Dame.


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